June 17, 2022
The impact of the COVID pandemic in the supply chain world has been well documented from lockdowns to urgent PPE shipments resulting in supply chain disruption.
With COVID restrictions rapidly reducing in many parts of the world, is it fair to comment that the general public assumes that supply chains have recovered and goods will be accessible as before?
Amongst supply chain experts, that is highly questionable, since disruption to freight transportation and warehousing is still clearly evident.
Shortages in the United States have also alerted the majority, who have only recently learned about supply chains that perhaps, the ‘new normal’ will look very different moving forward.
The question remains “Is the right inventory in the right place at the right time for the right cost?”. A simple statement that supply chain textbooks have cited since their creation, which is in fact not too long ago.
Globalization created a full array of new opportunities for sourcing, manufacturing, assembly, and more, with lower variable costs such as cheaper labor as well as operational infrastructure.
However, rising shipping costs and transportation disruption, as we have seen in recent years, jeopardize the foreseen benefits of international production and sourcing.
Now, it becomes a more in-depth discussion than just contingency planning for unforeseen events such as for example, a global pandemic. Decisions at board room level are being made to change direction and indeed locations for their operating infrastructures are seen as a strategic imperative rather than a ‘nice-to-have’.
In recent weeks, the COVID zero-tolerance policy in China has seen further chaos added to supply chain woes. With reports of over 150,000 TEU waiting to be shipped from China ports, alternative manufacturing locations are becoming an increasing reality for many brands as the world awaits the impact of the congestion in Europe and the United States.
Europe and the USA are already receiving panic alerts as the threat of further port congestion, as experienced at unprecedented levels during the COVID pandemic, leads up to the shipping peak season as well as turbulent labor issues such as we reported about Hamburg recently.
It is clear we are still living in unprecedented times and shippers have experienced the delays, costs, and bottlenecks that congestion creates during the COVID period. Although forecasting and planning have been at the top of the agenda, it is clear there is uncertainty in the future.
Alternative transportation solutions have been provided to accommodate the shipping challenges. Crane Worldwide Logistics, for example, has provided additional aircraft capacity through regular charters from both Asia to the US and US to Europe as well as Europe to the US to supplement our client's ongoing requirements.
Alternative gateways have also been used to avoid substantial delays that have occurred at major US gateways and significant investment has been made to supplement warehousing capacity to adhere to the change in direction from just-in-time to just-in-case inventory management.
Rising inflation, low consumer confidence accompanied by full warehouses, labor and equipment shortages as well as impending strike action could be an indigestible cocktail for many manufacturers in the near future.
Global business is now faced with big decisions, to react or to act to the shipping crisis. In some cases, alternative manufacturing locations have been developed outside of China, in South East Asia, India, and Eastern Europe for example. But, just how far nearshoring will develop is a question of time and strategic planning.
Times are changing and supply chains will prove to be the strategic advantage of the successful businesses of the future. Partnerships matter. Reach out if we can help!
Air Freight and Ocean Freight disruption is continuing on a global scale. Events such as the conflict in Ukraine, inflation and escalating fuel prices, global supply chain directors continue to face challenges in the freight market.
Gerard Ryan, President Global Commercial at Crane Worldwide Logistics gives a summary of the latest events in a business briefing conducted in association with CEIA, Cork’s technology network in Ireland.
Below is a summary of the presentation.
The economic recovery of the air cargo market remains highly dependent on the recovery of the airlines. At the start of the pandemic, many industries were impacted heavily by the COVID-19 crisis. The slowdown of transportation networks, such as Hi-tech and life sciences were notable.
Commercial airlines provide significant capacity for air cargo in the bellyhold of the aircraft which is transported on passenger planes. When passenger planes were restricted from flying during the Coronavirus pandemic, capacity constraints caused supply chain disruption for many industries.
More cargo capacity will become available on passenger planes as confidence levels increase. In the meantime adding capacity via cargo aircraft continues to be a priority for forwarders.
The Omicron variant in 2022 continued to impact global travel and most recently the outbreak in Shanghai has restricted capacity from the major hub in PVG airport.
With regards to the big manufacturing trade lanes out of Asia, demand continues to outstrip supply. The booming retail consumer market also continues to drive demand for air freight capacity.
Increasing the availability of aircraft to transport cargo will support a return to stability in the air freight market. From a capacity, rate and service point of view, this will improve upon the current situation.
Crane Worldwide is a flexible and proactive organization. The company has recently invested in charter aircraft. This will increase the capacity available for our clients from Asia to the United States as well as from the United States into Europe.
The demand for ocean freight space increased during COVID-19 due to the lack of air freight capacity. This increase as well as blank sailings and the shortage of containers contributed to huge disruption in the ocean freight market and supply networks.
Ocean carrier scheduling reliability has suffered due to the various constraints in the market. In 2019, ocean freight sat at approximately 80-85% reliability which dropped dramatically to 30% in 2021.
This has led to high increases in ocean freight rates that have impacted global supply chains heavily and created backlogs in major ports.
During the COVID-19 surges in 2020 and 2021, rail freight soon became a reliable alternative solution to air and ocean freight from China into Europe. Given the steady transit times, rail freight provided some certainty in arrival times for goods being transported into Europe from Asia.
Multimodal routing also became available from Vietnam, Japan and Korea etc to short ship into Europe. According to China Railway, the shipping volume of China Rail Express reached 707,000 TEUs, with a year-on-year growth rate of 53% in early 2021.
Trucking from China to Europe also gathered momentum at that time supporting low to medium value cargo.
Since the conflict in Ukraine began, however, the rail freight option is now impacted heavily due to the ever changing circumstances. Rail routes through Russia currently have not been impacted however there is a lot of uncertainty how this situation will evolve.
The labor market and escalating oil prices are significant concerns for road freight. Driver shortages across the world continues to challenge the trucking industry. Trucking is a vital mode of transportation in an effective supply chain. From airport to final destination or port to door, the majority of freight at some point travels via truck.
Oil prices have increased significantly due to COVID-19 and the Ukraine crisis are pushing the price of diesel to unprecedented levels. Analysts at JP Morgan Chase & Co and Bank of America have predicted disruptions to Russian oil flows could push oil prices to $185 to $200 per barrel. Trucking rates therefore will be elevated compared to previous levels, not only due to diesel but also high demand for truck drivers and wage inflation.
The full webinar is available on CEIA.ie, Cork’s technology network’s website here
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About CEIA (view brochure here)
The CEIA is an industry lead, non-profit association which has represented High Tech companies in the Cork region since 1984. It works in collaboration with both Regional & National agencies such as Industrial Development Agency (IDA), Enterprise Ireland, the Cork Education & Training Board, the Cork Institute of Technology and University College Cork, to ensure a sophisticated technological infrastructure is in place to enable the industry to grow and prosper.
The organisation was founded in 1984 by a number of CEO’s, primarily focused on lobbying improvement of the infrastructure of the region and to nurture industrial growth. It has achieved major success since inception, and can be considered the significant Association representing the Manufacturing, Supply Chain and Technology sector in the Southern region of Ireland. The CEIA currently comprises >50 members, including the 5 statutory members, MTU, EI, CETB, IDA & UCC
UPDATE January 2021
It has been one year since the COVID-19 pandemic emerged, highlighting vulnerabilities in supply chains and creating a new challenging landscape for international trade for many organizations around the world.
The foundation of an efficient supply chain process had always been dependent upon predictable supply and demand forecasting. It all changed as the pandemic struck around the world, and the most tremendous turbulence in the supply chain, ever experienced in this lifetime, began to unfold.
The 'aftermath' of the pandemic (although still prevalent in many countries) has emptied shelves and diminished safety stocks as manufacturers reduced production at the outset of the Coronavirus crisis.
The impact of the bullwhip effect has never been more prevalent than at present. Demand is now outstripping supply in many parts of the world, and transporting cargo is still challenging.
Consumers in the United States are in purchase mode. Having been faced with lockdowns and closed stores, consumers have reawakened from the pandemic. According to a recent report by JP Morgan, consumer spending in the U.S. is increasing:
It would appear that the U.S. is returning to regular lifestyle activities post-pandemic, and consumer demand has kick-started in 2021.
The COVID-19 pandemic in the past year has indeed been 'a perfect storm' for supply chain professionals. The culmination of reduced manufacturing output, empty shelves due to panic buying, limited air freight capacity in the belly hold of passenger planes, closed borders, and increased capacity demand required for COVID-19 vaccines and supplies led to a multitude of disruptions. Additionally, Brexit added to the turbulence.
One year later, supply chain disruption is still ongoing with container shortages, limited passenger flights, and most recently unpredictable circumstances such as the most recent blockage of the Suez Canal. Costs are rising due to the challenges and are impacting companies around the world.
As supply chains adjust to the initial disruptions created by the outbreak of the COVID-19 coronavirus, additional challenges are beginning to emerge as the global crisis continues to develop around the world.
Consumer demand is now the question that troubles supply chain experts. In addition to business and store closures for indefinite periods, industries may also experience a reduction in consumer demand. Many homes face challenging times ahead due to labor uncertainty and reduction in household income.
Forecasting will inevitably be a challenge as unpredictable demand will dominate supply chain operations as will optimizing production and distribution capacity.
Scenario planning and analysis will undoubtedly be a valuable tool to understand both the financial and operational implications of any further disruption.
During times of crisis and rapidly evolving circumstances, partnerships throughout the supply chain are imperative to maintain an agile and visible approach to fluctuating supply and demand. Are you prepared if another pandemic or a second wave of COVID-19 strikes? As your logistics partner, Crane Worldwide Logistics can support you with diversifying your solutions through warehouse capacity and flexible transportation measures.
As you begin to assess your future consumer demand, determine your current and future inventory requirements as well as forecast any influx in your supply, we can provide a flexible logistics approach to ensure your business continues to run effectively. Mitigating risks, we can provide support to you in the long term both now and in the future. How will you build supply chain resilience into your operations should a similar pandemic reoccur?
Hau Lee, a professor of operations, information, and technology at Stanford Graduate School of Business, broke down the top priorities to overcome Supply Chain challenges. For most large manufacturers, globalized sourcing is here to stay; therefore, the big priority for companies is to increase their awareness about what’s happening throughout the supply chain.
A second priority is to build more flexibility into the production process (operational hedging). The best way to navigate these challenges is by having alternative sources.
The third priority, according to Lee, is to increase logistical flexibility. Investing in logistics can significantly expand a company’s options.
Moving forward, as stated by Professor Lee, companies and manufacturers looking o overcome global Supply Chain challenges should: