As anyone in the logistics field knows, a confluence of stressors continue to strain a highly congested and extremely delicate network. Ocean freight demand at all origins around the world already far exceeds capacity, with no end in sight to that demand. Congestion in one region, whether caused by demand or low water, can wreak havoc at other ports. Domestic rail congestion combined with container truck chassis shortages conspire to make dray operations a challenge everywhere. And that’s without taking into account the impact wildfires and other natural disasters have on supply chains.
From COVID-19 outbreaks to container shortages, from record demand to domestic rail congestion and truck lease walkouts, the ability to synchronize the network is all but lost. In this unprecedented environment, manufacturers are looking for ways to mitigate risks, keep their supply chain moving, and avoid production stoppages. Here are three strategies that can help.
Strategy #1: Secure Future Capacity Now Manufacturers can help assure their shipments won’t be impacted by booking freight as far in advance as possible.
Strategy #2: Evacuate Freight at Origins With the North American freight situation in disarray, manufacturers need to take creative steps to mitigate risk. Possibilities include:
Strategy #3: Gain Control Upon Vessel Arrival Risks abound in the domestic rail and trucking outlook across the US and Canada, with the overwhelming volume of containerized freight pushing the network to its limits. Assert control as near the ports as possible.
Choosing the Right Partner Can Mitigate Risks Strain on global logistics is such that any historically minor event can result in a significant negative impact. By securing future capacity, diversifying arrival points, and gaining control of freight upon arrival, US manufacturers can begin to mitigate the risk of production stoppages.
The right logistics partner can bring value-added expertise and management to your supply chain. EQI continues to secure capacity and safeguard the supply chain of some of the world’s leading OEMs. We can help you, too. Contact us to learn more.
Covid variants, extreme weather, and labor will continue to have a negative impact on all logistics operations as we head into 2022. Covid is again restricting air travel, which in turn impedes the air freight network. Much as forest fires did a few months ago, flooding in the Pacific Northwest has severely disrupted rail services. And labor factors are not trending positively. Operational planning in the near term should continue to be conservative in nature.
Here’s what logistics managers can expect in the near, mid, and long term from the containerized freight network.
Continued service volatility across the network should be expected in the near term. Empty containers are filling North American port complexes and makeshift storage yards along the East, West, and Gulf coasts. Expect empty container availability to deteriorate at origin, trending towards a severe constraint from now through Lunar New Year.
The normally positive impact of the Lunar New Year respite on US domestic operations will not occur this year. Where US port, rail, trucking, and warehouse operations have historically “cleared the deck” of volumes during the holiday, existing backlogs will prevent that benefit in the coming months.
The most significant mid-term factor impacting the freight network is the negotiation of the 2022 labor contract between the International Longshore & Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). The ILWU is keenly aware of the record-breaking earnings among steamship line members of the PMA. During negotiations in 2014 and 2015, rather than conduct strikes and lockouts the ILWU proceeded with systematic “slowdowns” designed to apply pressure to the PMA while decreasing the risk of the government invoke the Taft-Hartley Act (which prohibits certain union practices). Cargo owners today do not have the opportunity to diversify away from the US West Coast in preparation for any contentiousness in the process.
Given these factors, the ILWU walks into these negotiations with strong leverage. The International Longshoremen’s Association (ILA), which represents labor on the US East and Gulf Coasts, will be closely watching developments, given that its current contract with the United States Maritime Alliance (USMX) expires in 2024. Should a highly favorable agreement be reached by the ILWU, the ILA may consider a reaction well before 2024.
Forwarders are left with little leverage. The new ocean freight contract season will be the first of its kind, with all bargaining power in the hands of steamship lines. What little leverage remains with forwarders, having diminished dearly over the last 18 months, continues to slip away. Regardless of where rates may end up, cargo owners who do not have existing multi-year agreements or tried-and-true partnerships could be completely left out. Leverage held by steamship lines is such that cargo owners may also face a new reality of financial penalties for any unused bookings.
Black Friday sales were down this year for the first time in history. Inflation is no longer “transitory,” according to analysts. Cash-to-cash cycles are already leveraged due to long transit times and global raw material and parts shortages. How will corporate lenders react to a downturn in consumer spending, and how could that reaction impact supply chains?
The long-term horizon may be the easiest to predict, with the upside of network consistency and capability. And that upside is not related to infrastructure investment by the government. Steamship lines have not demonstrated strong discipline in managing long-term capacity. Fueled by record earnings, new vessel orders are at historic levels. Once those vessels begin to come online in 2024-2025 carriers are more likely to resort to their old habits, where cargo owners benefit from price wars.
Many supply chains diversified origin footprints in response to trade wars with China. Following continued covid shutdowns, diversification continued. In addition, domestic and nearshore solutions have become more popular throughout the last 18 months. Should strong sourcing diversification remain in place, cargo owners can expect better consistency within the containerized freight network. New vessels are likely to be deployed to port pairs where demand is consistent.
As creative solutions have become the new normal for supply chain professionals, North American port diversification is more prevalent than ever. Combined with more diverse sourcing origins, and assuming the combination remains a reality, the overall ability of the containerized freight network to react to one-off events like weather, trade wars, labor agreements, or health pandemics, should be improved greatly.
In the meantime, EQI can help you negotiate the significant challenges currently facing manufacturers as they try to secure parts on time and on budget. Contact us today to find out how EQI can simplify your supply chain.
Virus outbreaks. Natural disasters. Vessel accidents. Geopolitical instability. Exceedingly high demand. Freight rates so high they would have been unimaginable only a short time ago.
The now-normal new normal, for supply chain operations, is not likely to improve anytime soon.
January and February saw US west coast terminals handling an all-time historic low (58.2%) share of total imports from Asia to the United States, while the US east and gulf coast terminals handled average all-time high percentages. In advance of July 1, when the existing longshore labor agreement on the West Coast will expire, beneficial cargo owners (BCOs) have diverted enough volumes away from the US west coast that terminal operations on the other US coasts are now constrained.
As demand for the US east and gulf coasts increases, steamship lines have boosted vessel sizes and added new services in these ports. Queues for terminals along these coasts now well exceed 70 total vessels. Shippers now must attempt to manage the same challenges on the East and Gulf Coasts that they’ve had to manage on the West Coast for the last 12 months.
Covid outbreaks in China (and the government’s response to them) are causing havoc to landside origin operations, with vessel queues climbing daily for China ocean terminals. Whenever this current covid crisis finally untangles, the whiplash effect on North American terminal operations will be significant.
The now normal is an environment where supply chain design, team members, and partners must acknowledge that further disruption—whatever the cause—will continue to unfold. The effects of such disruption in the now normal, including the financial costs of moving freight, are exceedingly painful. Planners should continue to plan conservatively. Any freight arriving ahead of conservatively planned transit times should be considered an upside and not a signal of an improved containerized freight network.
North American port productivity has proven not to be the singular pinch point in the end-to-end network. North American landside operations including domestic rail, domestic trucking, and domestic warehouse operations must become more efficient on their own and in concert to benefit from any singular nodal improvement at origin, on the water, or in domestic terminal operations.
Should demand cease, virus activity disappear, and steamship capacity become fully realized, the end-to-end network is still 12 months from anything resembling the old normal. In the meantime, EQI is helping OEMs navigate the now normal to secure parts on time and on budget. Contact us to see how we can help simplify your supply chain.
Today’s supply chains are more complex than ever and continue to be impacted by the pandemic, natural disasters, geopolitical challenges, trade disputes, and other risks.
Successful management of a casting supply chain requires a defined step-by-step process; metallurgical and casting design expertise; sourcing and logistics experience; on-the-ground management of a global network of foundries; and flexible fulfillment solutions. For many OEMs, that means contracting with a trusted supply chain partner.
EQI takes a proven approach to manage the global casting supply chain for our OEM customers. Contact us to learn more.