How Technology is Solving the Global Supply Chain Disruption
Back To All Posts | Posted on November 3, 2021
Everyone is talking about the supply chain these days. The current disruption is causing people all over the world to pay more and wait longer for products to be delivered to their area. With the holidays coming up, people are worried that they will not be able to get the food, gifts, decorations, and other things they need to have a happy holiday.
Weak, persistent pain points and ongoing disruptions are the current state of affairs throughout the global supply chain. With no end in sight, everyone knows that this global supply chain disruption is a lingering consequence of COVID-19.
Can technology help navigate the supply chain disruption?
Polish writer, Stanislaw Jerzy Lec said, “The weakest link in a chain is the strongest because it can break it.”
From a shortage of shipping containers to soaring rates, massive disruptions in ports, shipping routes, air cargo, trucking lines, railways, and warehouses, things are far from normal. In addition, there are looming backlogs in this peak holiday shipping season and this is causing worry and confusion for both merchants and consumers.
Large manufacturers are struggling with shortages of key manufacturing components, order backlogs, delivery delays, and a spike in transportation costs. Consumers are complaining about the delays and the higher prices they must pay. Everyone is wondering when things will stabilize and return to normal.
Strains in the supply chain were evident long before COVID-19 with the trade tensions between U.S. and China, and the tariffs and sanctions put on Chinese companies. The unexpected shift in trade put the initial stress on global logistics. Then the world was forced to deal with a global pandemic.
The demand for most goods tanked in the first half of 2020 as economies worldwide went into lockdown. Manufacturing was diminished to almost a standstill, workers were displaced and forced to work remotely, and ocean cargo carriers were canceled. The global supply chain was halted.
In the second half of 2020, imports to the U.S. surged due to a massive fiscal stimulus. While consumers adjusted to the new dynamic of working from home, the retail industry experienced a flood of consumer online orders resulting in the reopening of manufacturing and international trade. The global supply chain was back in action.
By late 2020, the supply chain started to buckle under the pressure of emerging cracks. The intricate system that moves raw materials and finished products around the globe requires predictability and precision. Unfortunately, both had been lost.
Congestion evolved at international ports further spreading to railroads, intensifying the trucking and chassis shortage that was already in place. Shipping rates for many routes skyrocketed. Imports of key manufacturing components into the U.S. were delayed and exporters faced challenges accessing empty containers and shipment bookings. The chain was broken.
With the holiday season drawing closer, the logistics industry is bracing for another surge in demand that could further damage the supply chain. To restore order in the supply chain system, every link in the chain must operate effectively and each component has its own unique challenges to overcome.
Where are All the Shipping Containers?
Shipping containers are a crucial component of global trade. They move goods from one international hub to another. In today’s climate, the container industry is booming.
With post-lockdown consumer demand, the low container turnover and port congestion were amplified by a dramatic labor shortage. The average price for a standard 40’ container is more than double what it was in 2016. Today, thousands of containers are still stuck all over the world out of circulation. This has been a critical part of restoring the supply chain and this problem has not been solved to date.
The lack of circulation problems in the U.S. is creating record-high shipping rates for some routes. Exporters are challenged with shipping lines refusing to send containers inland to pick up their cargo. Others are trying to get empty containers back to factories in Asia.
The grounding of the giant container ship, Ever Given in the Suez Canal in March 2021, along with the shutdown of a key port in southern China in May further strained the container shortage leaving roughly 350,000 containers idle.
The shipping industry transports 90% of our goods around the globe every day. Experts are predicting that prices will keep rising until container circulation and availability improves.
More ships are needed, but this is still a few years away. Additionally, the trend toward larger ships creates infrastructure challenges at ports and in other areas that service them. Ships are double or triple the size from the early 2000s and can now hold more than 20,000 containers. They require more truck, train, and warehouse capacity to load and unload, and when delays occur, more containers are affected.
The price to ship a container from China to the U.S. West coast is 13 times more expensive than the pre-Covid cost. However, it is only two times the amount to ship from the U.S. West Coast to China. This indicates the relative demand and emphasizes that it is more profitable for carriers to return to China with empty containers rather than wait around for U.S. export goods that are slow to make their way to a port.
This imbalance is impacting container circulation and the flow of trade. Until the discrepancies in prices normalize, the industry will have to cope with higher costs and long delays.
From a shipping perspective, port infrastructure is a critical link of the supply chain.
In a recent interview, Gene Seroka of the Port of Los Angeles highlighted the changes ports have made to deal with the increased traffic, “Productivity is 50% higher than pre-COVID levels, but delays are still happening. Shipping vessels and their container cargo are sitting 2.5 times longer at anchor than they used to before COVID. Think of it as a huge traffic jam.”
In addition, capacity issues at the ports are largely due to problems with the next link in the chain: a shortage of truck drivers.
Trucking is the primary source of container transport once the cargo is unloaded at a port. A shortage of drivers across the country means much of the container volume sits idle at capacity-constrained facilities. Frustration with employment prospects, safety concerns, expanded unemployment benefits, and having kids at home have contributed to drivers leaving the industry.
Statistics show that there is a shortage of truck drivers due to aging truckers retiring. Low pay and lack of benefits is another issue, along with poor working conditions.
The U.S. reports a whopping shortage of around 60,000 drivers. Wages are rising in the industry, but it will take time to lure people back.
Railroads are the next link in the chain. Trucks bring containers to various hubs where the containers are loaded onto trains and then moved inland. When the system works properly, containers are lifted from arriving trains and placed directly onto a wheeled chassis, which is then hauled away by a local driver. The chassis is then supposed to be quickly unloaded by the final customer and returned back to the railyard by truck.
A notable bottleneck is in Chicago, where seven of the major North American freight railroads converge, creating a complicated web of inbound and outbound operations between trains and trucks. The major railroads have their own issues to contend with, including a labor shortage.
Even a small hiccup in the system can create major problems, and the volatility in supply and demand over the last two years has been no small challenge.
In addition, another source of uncertainty is the weather, something that no one can control. Almost all major railroads have lines that run to New Orleans. Hurricane Ida forced the rail network to close its mainline in Louisiana. The service disruption could spread across the US rail network as freight cars are rerouted. It typically takes weeks and even months for railroads to fully recover from an extended shutdown of main lines.
What About Shipping by Air?
With the congestion that ground companies were experiencing, one option was switching from the sea and land cargo to air cargo. Unfortunately, this is not the best option due to the cost. Airfreight is roughly eight times the cost of shipping by sea. Most airfreight is carried in the cargo holds of passenger jets. With international air travel severely reduced, so are available cargo slots. Fewer slots translate to higher prices.
Warehouse capacity is contributing to the bottleneck.
Warehouse capacity is an often-overlooked component in the supply chain. Many containers are unloaded at distribution centers, and if there is no available space, it adds to the container circulation problem. Growing e-commerce demands, especially post-COVID, created a shortage of warehouse space, leading to higher warehouse rental rates, which, in turn, is passed on to consumers.
Labour shortage issues and increased rent and facility costs also add to the challenges warehouses are facing. Out of those surveyed by Reuters, 41% were in search of new space with 27% saying that finding new space was the biggest challenge they were facing.
In the July Logistics Manager’s Index Report, it was revealed that the Warehousing Prices Index component registered its highest mark in the history. There was a 2.6% increase from the previous month and a staggering 20.5% rise from the reading one year ago.
Many are asking: “What Needs to Happen Now?”
Let’s explore how technology can help navigate the supply chain disruptions
Technology has the capability of offering logistics companies a way to gain needed agility, flexibility, and resilience. While we will always need a human workforce in some parts of the supply chain, having a state-of-the-art, digital automated technology plan is key.
For the logistics industry, utilizing scalable and reliable logistics cloud software platforms that produce real efficiency to essential functions across the supply chain is paramount to survival and success.
Efficiency is the name of the game in the new logistics industry framework. If companies can’t keep track of what’s happening, they may find customers choosing other logistics firms to handle their cargo.
Centralization, Cloud, Digitization and Automation
It all starts with the centralization of company data and processes. Customs Brokers and Forwarders need secure cloud solutions that ensure ease of data access across the organization from a single source of truth.
Many of these major risks associated with owning a data center, network, hardware, and software are eliminated when companies use cloud technology. Everything in the cloud is virtual allowing your employees and clients access anytime and from anywhere.
Then there’s digitization, the use of platforms that easily and accurately enable the conversion of physical documents and files into standardized digital formats.
Finally, companies need automation tools that can replace labor-intensive manual processes with accurate and agile operations.
Enable a Self-Service Customer Experience
Keep your customers informed with a self-service Customer Facing Portal that exchanges information smoothly. Create a free-flowing exchange of information, all in one place with information at their fingertips.
Provide Better Visibility
Customers now demand timely, accurate data about current shipment locations, potential delays, and eventual delivery dates. With automated and real-time progress updates of their freight’s location at any given point of its journey, everyone stays in the loop about the current status of each shipment. This makes it easy to identify and locate any obstacles in the way of the shipment.
Container Tracking makes it possible to keep your clients in the loop. With real-time end-to-end visibility available 24/7, customers always have access to the latest information about shipment progress.
Better Technology for Your Continued Success.
Technology is more powerful and accessible than ever before. The businesses that utilize it will be the ones that continue to survive and prosper in this global disruption. As we navigate beyond the effects of this pandemic, logistics companies and shippers will find that investing in up-to-date, innovative, modern cloud, digitization and automation technology provides the critical capability to make smart, agile decisions for a successful and profitable future.
Contact us today to discuss how technology can help you.