How do I reduce the risk and cost of my supply chain but improve my service?
There are three immediate issues that you should focus on in 2022.
- Risk – can your supply chain withstand network disruptions
- Cost – what kind of cost pressures will manifest themselves during 2022
- Service – Can you provide/receive a reasonable level of service through your supply chain
Let’s look at each of these issues one by one and parse them into components that need attention over the next 12 months. Now is the time to be looking at, developing plans for, and executing a sound supply chain strategy in 2022.
SUPPLY CHAIN RISK
How breakable is the supply chain you employ to get product, raw materials, componentry, finished goods, from your vendor community? Do you have safeguards in place to remedy breakdowns in the “supply” chain? For example, if your supply chain has products that originate outside the domestic US, will you be able to get them either in the quantity needed, when needed, or at all for that matter? Do you have multiple supplier sources lined up to allow you to switch from one supplier to another seamlessly or are all your eggs in one basket for key product sources? There have been, up to this point, numerous embargoes, shutdowns, slowdowns, etc., that have impacted sources of supply. Covid-19 was a huge factor, and still is, in sourcing decisions. Put yourself in a position that allows you to flex with the network, not suffer from it. Have multiple sources of supply in multiple locations.
COST
According to the FMC (the “Fed”) inflation was initially thought to be transitory. If you have been sourcing either products or services (such as transportation) you know that inflation is here to stay in 2022. Specifically, freight rates on all modes have been going up steadily, some at double digit rates. Although we know that this is not sustainable in the long term, it is a fact-of-life in 2022. Motor carrier rates have skyrocketed. Labor shortages, weather, input costs such as fuel, all have had a huge impact on and cause for increased rates. So, what can you do about it in 2022? Our advice is to get into long term contracts of a year or longer. Lock-in now at the best rates you can and keep them in place for as long as you can. Once again, variety will help you. Leveraging volume with few logistics suppliers is not a recommended strategy in today’s market. Keep your modal options as well as your individual relationships open to as many carriers as you can manage effectively.
SERVICE LEVELS
Everyone seems to have gotten over the initial shock of having goods take much longer to get from point A to B these days. The recommended strategy for service going forward is two-pronged. Set realistic expectations with your customers. Make them aware of the challenges in the logistics network and let them know what you are doing to help mitigate the issues. One clear point is that you must have multiple options to move product because many logistics suppliers are simply under water. There is less capacity for more demand. This causes the network to go out of balance which in turn takes a long time to heal. The second prong of the strategy involves looking at options that you haven’t considered before. Dedicated capacity, Private carriage, Multiple-stop truckload vs LTL. Anything that allows you the ability to circumvent supplier issues is relevant in today’s marketplace. The more options the better. A third-party logistics company (3PL) can help provide more solutions.
Riverside Logistics. a twenty-five-year-old, third-party logistics company based in Richmond, Virginia, that prides itself on being able to handle logistics a myriad of challenges confronting its clientele. They have close to 1MM square feet of useable warehousing and participate in local, dedicated, and long-haul transportation markets. They also do Logistics Management Consulting with clients to improve the execution of their Logistics networks. We know that we can provide solutions that are both cost and service effective in today’s marketplace. Give us a call and we’ll be happy to try and help you.
About the author
Jim Durfee
Vice President Business Transformation
Headquarters: Riverside Logistics, Inc. , 5160 Commerce Road, Richmond, VA 23234
Riverside Logistics is a full-service third-party logistics company (3PL), delivering world-class supply chain management solutions.
If you would like more information or have questions about this article, please call Jim at 804- 474-7700 Option #4.
WHY ON EARTH WOULD YOU WANT TO SHIP TO THE EAST COAST?
And if you decide to ship to the east coast here’s why Virginia may be the best destination port to use.
Here are some compelling reasons to consider changing how you route shipments originating in ASIA.
- Ports in California have been making headlines because of unprecedented delays both on the water, and then thru and beyond the ports. During this same time frame the Port of Virginia has been running smoothly. It has also been performing better than other ports along the East Coast. The Ports in Virginia have different operating structures than others, especially those on the West Coast. Virginia Ports are run by one entity, the Virginia Port Authority. If one terminal starts backing up the VPA will switch traffic and unloading to another terminal to avoid costly delays and congestion. In addition, VPA also has sole authority and control over the trucking aspect. The west coast, by comparison, has 3 different truckers that they need to deal with. This gives Virginia another advantage in managing the flow of goods thru and beyond the port. Last, but not least, the VPA has automated stacking cranes. This means fewer shifts are necessary to unload containers. Adding this all up means that Virginia is clearly winning the port war and should be considered a strong option for freight originating in Asia.
- So, let’s change gears a bit and talk about LABOR. The ILWU, International Longshore and Warehouse Union, has labor contract negotiations coming up in 2022 for its entire West Coast labor force. The last negotiation 6 years ago, produced severe disruptions. At that time, many shippers were caught flat-footed and had to divert to Gulf Coast and East Coast ports to compensate. This time around you don’t want to get caught off-guard and un-prepared. The ILW Union has already rejected an offer by the terminal operators to delay negotiations until 2023. The head of the union told its workers to “save up” as they prepare for negotiations, meaning that this time around it may be even more painful and take a “long time” to iron out. A really long time with lots of disruptions and down-time.
- The West Coast is a logjam right now and into the foreseeable future. Ships and containers are stacking up like cordwood. The port has a significant backlog of ships waiting to be unloaded. Once they are finally unloaded then there are backups in getting the containers on trucks or railcars for movement to their final destinations. Overall transit times from ASIA have tripled. What used to take 30 days, now takes 90 days. That represents a lot of idle cash, sitting unused.
Time is money, if for example, your cost of capital is 3-4% and your carrying costs are 25%, then each day, each dollar of inventory sits for longer than it used to or should, then it ends up costing you $35 per $50,000 of in transit inventory value per day, more than it should. This adds up very quickly and turns into big dollars wasted. One container on the water for 60 extra days could cost $2100 more with the longer transit. If you ship 100 containers annually then that’s over $200K in additional cost to you each year. Safety Stock levels would be lower for a 30-day transit than for a 90-day transit pipeline. Safety stock is money sitting too, not being converted back to cash, not generating sales. These costs add up fast and are very un-productive.
- Since the ultimate customer maybe closer from the east coast than the west coast, domestic transportation costs will be lower and transit times faster. More than 2/3rds of the US’s domestic population is within 2 days of the Virginia Ports. Unit costs (per carton, per lb., etc.) will be lower. Damage and loss risk is lower on the domestic pipeline when using east coast unloading vs west coast unloading. The longer the transit, the more opportunity exists for damage and loss. Damage and loss will create unhappy customers, and unhappy customers will create lower sales and less profits.
Now let’s look at Norfolk and Richmond as destination ports versus other east coast facilities.
- Virginia serves 2/3rds of the US population within 2 days. Virginia is a crossroads to the west, the south and the northeast either by truck, intermodal or rail modes. Its central location makes it ideal as a distribution point for the entire East coast, Southeast and Midwest.
- Warehouse rates for inventory are lower and more space is available in Virginia than anywhere on the east coast. Labor costs and insurance costs are extremely competitive.
- Trucking rates outbound from Virginia are very competitive with other east coast ports. If you ship south from Virginia, vs more northern ports, you costs will be substantially lower. If you ship to the Midwest rates will be competitive.
- The availability of transportation alternatives is very high in Virginia. The ratio of loads to trucks is balanced better here than at other east coast locations.
All in all, the east coast is an attractive alternative to the west coast as a destination port from Asia. Out of Europe it’s a no brainer, transit is substantially shorter and freight rates are much better. Virginia has some key advantages over other east coast ports, that will produce a competitive edge for shippers. Depending on the distribution of your customer base and its density in proximity to Virginia, you may have a real opportunity to advance your competitive position by shipping thru and stocking product In Virginia.
One last point. Although breaking up your inventory into east coast and west coast lots makes for a more difficult management process, it may allow for enhanced supply chain risk as well as increased leverage when dealing with warehouses, carriers, and vendors. Depending on your business model, you may decrease your inventory pipeline, lower your supply chain risk, enhance your competitive position, and provide a higher level of customer service. It’s worth looking into and Riverside Logistics will be happy to help you make a decision. Now is the time to be working on this before it is too late to make changes.
About the author
Jim Durfee
Vice President Business Transformation
Headquarters: Riverside Logistics, Inc. , 5160 Commerce Road, Richmond, VA 23234
Riverside Logistics is a full-service third-party logistics company (3PL), delivering world-class supply chain management solutions.
If you would like more information or have questions about this article, please call Jim at 804- 474-7700 Option #4.
So, you found the right warehouse location, did you look at the transportation cost that goes with it?
More often than you would think, warehouse siting decisions are made without considering the transportation part of the equation. Transportation costs usually are at least 3 times as much as warehousing costs. In some cases, transportation can be one of your largest expenses in your supply chain. Why this is the case, is beyond me, but don’t be one of those companies that finds the perfect spot for your warehouse, only to discover after-the fact, that you can’t get capacity to service it, or that the rates to haul freight into and out of it are higher than you expected, or both.
Typically, warehouse site selections hinge upon three or four basic categories:
- Availability of structures suited to your needs in the locale your entering
- Labor costs and availability in the area you are looking to locate to.
- Inventory costs such as taxes in the locale and state, think California vs Nevada here.
- So, what did you miss? Transportation. Is the location highly accessible by truckload, intermodal, and LTL modes? Can they service it daily? Will there be enough capacity available to your facility to handle your outbound shipping volumes? This is especially critical if you are a high volume FTL shipper. How far away are you from key markets you want to service, one day, two days, longer? How much does this matter, a lot or a little? From a transportation standpoint, is this going to make your life difficult? For example, in the winter, are you in a snowbelt location that could disrupt your ability to ship because carriers cannot get into your location.
Now let’s shift the key question set over to transportation costs. In transportation there are head haul and back haul markets. A good example is the northeast market. You pay a lot to run freight into the northeast because drivers don’t want to go there because its congested and hard to get around, and there are also many toll roads. On top of that, and more importantly, there aren’t as many loads going out from the northeast as there are coming into the northeast. So, if you have a location shipping to the northeast a lot, then your freight rates will be higher than if you have a location in the northeast that you are shipping out from.
Seasonal concerns are an issue. If you site in the deep south, you will have to contend with what is known as “produce season”. This is when every truck wants to go south to pick up produce going north. Rates into the deep south go way down (during this time frame) but capacity is hard (sometimes impossible) to find coming out from this area. Same holds true for “lawnmower” season in TN/Ohio market. There are examples of when seasonality works for or against you. Being cognizant of this is extremely important to your warehouse siting decisions. You could end up putting yourself in a more/less competitive position by making the right or wrong warehouse location decision.
As you can see from the above discussion, transportation cost and service levels should play a big role in your warehouse location decision. The impact of a bad decision could have a large negative impact on your ability to be competitive and to service your customer base the way that they need to be serviced.
Jim Durfee – Vice President Business Transformation
If you would like more information on our consulting services please call at 804- 474-7700 Option #4
Do you use Logistics contracts, or do you buy on the spot market? If you spot buy, I’ll bet that’s been painful lately.
The current commercial transportation market is a “mess” right now. “Mess” is a technical term; it means everything is going in the wrong direction. Capacity is hard to find. Rates are going up by leaps and bounds. Service levels are dropping like a stone. Carrier relationships are becoming frayed. It’s just a “mess” out there in the logistics space.
If you have annual contracts in place with your transportation providers, then you are somewhat insulated from the vagaries of the marketplace for right now. Eventually as the environment persists, and it will, this will catch up with you too. Regardless of your contracts, you may still be seeing carte blanche service embargoes from the LTL segment. These have hit a broad base of shippers and 3PL’s, no matter their size and scale. Depending on your location the pain could be severe as you scramble to change carriers (if that’s an option) to get capacity to handle your freight.
If you buy on the spot market, good luck and God bless! First off, you must find a truck to haul your products. Then you must live with the price of the truck. Truck rates have gone thru the roof, with no end in sight right now. It’s a trickle-down effect. As the truckload segment gets maxed out, the freight shifts down to more expensive modes like LTL (less than truckload). As LTL gets overwhelmed the same thing happens to parcel. Networks get out of balance; rates continue their march skyward and good service levels become a thing of the past.
How did this happen? In a macro sense, it’s a simple equation. More freight, less drivers, and workers to handle it. Carriers furloughed drivers anticipating that the Covid pandemic would persist, and freight volumes would reduce for quite some time. The opposite happened. Freight volumes dipped, then came roaring back. Carriers could not adjust their pools of labor, drivers, dock workers, etc., fast enough to compensate and the network became overloaded.
When is it going to change back to the “good old days”? Not sure about the when, but if I were you, I would plan for the long haul well into late 2022.
What can you do about the spot market if that’s where you live? Tap into a reliable 3PL who already has contracts in place and can provide you with consistent rates for FTL, LTL, Parcel, and Intermodal (if you use it). 3PL’s typically negotiate their rates in annual contracts. Because of this they can provide you with rate stability. The biggest problem in business is dealing with the unknown. If you cannot predict your costs, then you cannot predict your future. A 3PL solution to the current mess is a step in the right direction to controlling your logistics costs.
Jim Durfee – Vice President Business Transformation
If you would like more information on our consulting services please call at 804- 474-7700 Option #4
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