The current logistics environment and the status of the Supply Chain are very confusing right now….for everyone. One minute capacity to move shipments is scarce and expensive, the next moment its loose (available) and less expensive. Container rates are thru the roof, then they’re not. Warehousing space is unobtainable, a lot more expensive, and the options are fewer and far between.
Let’s first look at some of the key drivers affecting the Supply Chain and the Logistics community.
- Cost of Capital
When money gets more expensive and harder to get investment goes down. This means carriers begin to extend their equipment life cycles, cut back on new equipment investment, and generally hold off on growth plans. The net-net of this is that your access to capacity, warehousing and such becomes harder and more expensive.
- Labor Resources
Logistics as an industry is a touch and feel type of environment. Most of Logistics Labor consists of drivers and warehouse workers and both must be physically on the job to perform their work. In addition, even pre-pandemic, both were in short supply. Now that demand for these roles has increased back to pre-pandemic levels, they are still a scarce resource. This translates in two ways. First it causes upward pressure on labor rates to keep workers from leaving. Second, it puts downward pressure on Logistics Providers ability to grow their operations to meet demand.
- Inventory Levels
Due to the pandemic, increases in demand and the length of the supply cycle inventory levels were increased dramatically. All the inventory had to go somewhere so it sucked up available warehouse space, containers, and trailers. Turns out the demand for goods tapered faster than anticipated and now inventories are too high and sitting too long. This means that space is at a premium, containers and trailers used to store product are not achieving good utilization rates and combined, these factors raise costs and lower service levels throughout the supply chain.
To encapsulate the main two sides of the equation, Supply is too few and Demand is too high. The Supply Chain functions most effectively when these two factors are closely balanced. Conversely. If they get out of balance, life in the Supply Chain is “difficult”. Like the last 2 years.
What I would do if I were you…run and hide. No, seriously I’d wait it out. I’d use the information I have at hand to build a plan on what you want to achieve with your supply chain and how you think that can be accomplished. The market is in transition right now. Rates are moderating, truck capacity is loosening, international volumes are dropping as are international container rates. However, a potential railroad strike is looming which could at the very least result in rail delays, which in turn become truck and container delays.
Now let’s talk about relationships. As a 3PL we (Riverside Logistics) get to see and interact with a lot of different supply chains handling a lot of different products and running on different criteria for execution. This means we have a pretty good thumb on the pulse of the supply chain. The overall Supply Chain can swing one way or the other, dramatically, and quickly. You must be nimble and have options available to you to handle these machinations. One very capable way to prepare for Supply Chain shock is to partner with a 3PL and to build a relationship of trust with that 3PL. When you do that, you get the benefit of their expertise as well as insight into the logistics markets. This can be a powerful tool for you to use when competing in the marketplace. 3PL’s usually have access to a substantial portfolio of carriers and modes. They know how and when to use them to execute competitively. That’s their business. They also in many cases have knowledge and capability in the warehousing space. They can tell you what market occupancy rates are like in the markets they play in and can help you find and manage space that meets your needs in the markets they serve.
So, lets recap. Right now, there are a substantial number of headwinds and tailwinds impacting the Supply Chain. To sort them all out will take some time. It behooves a company to sit back and let the leaves fall out of the trees a little more so you can see what’s coming next. It is also a good idea to try and build a strong working relationship with a 3PL to let them assist you by applying their expertise in the logistics markets.
It’s a little scary in the supply chain right now. If you try and “Time The Market” you’ll probably fail. Just like with the stock market, timing is not a good idea. Taking a long view is a better strategy and one that should pay dividends in the long run. Hope this advice helps set you on a path that provides your company with a good competitive posture in todays supply chain.