The "2019 23rd Annual Third-Party Logistics Study" reveals that supply chain shakeups are among the top concerns of shippers and 3PLs, but comparably few have effective risk mitigation strategies in place.
In today's global marketplace, supply chain disruptions pose a significant threat to organizations of any size. At the same time, supply chains are becoming more complex and distributed, making them more vulnerable than ever before.
Any disruption or delay, regardless of cause, can have a large ripple effect on the supply chain, causing missed deliveries and downed production lines, which can cost companies hundreds of millions of dollars and damage their reputation. For example, the catastrophic Tohoku earthquake and tsunami that hit Japan in 2011 cost the country an estimated $210 billion. Car manufacturers like Toyota, Nissan, and General Motors were forced to temporarily stop most of their auto production because they could not ship or receive required materials, shaking up supply chains all over the world.
Article Figures
[Figure 1] The impact of various risk mitigation strategiesEnlarge this image
Risk within the supply chain can come in several different forms, ranging from disruptions and delays to forecast and procurement issues. According to the study, the most common issues that shippers and 3PLs have faced include increased transportation and logistics costs, network disruptions, and an increase in supplier costs. Other top issues include damage, loss or detention of inventory, loss or impairment of production capability, product recall or failure to sell, unforeseen return, and loss of a key supplier.
The majority of shippers (58%) and 3PLs (64%) reported that natural disasters, extreme weather, or pandemics were the leading cause of supply chain disruptions, but they are far from the only source.
Among the respondents, 51% of shippers and 49% of 3PLs cited infrastructure issues (such as border delays, loss of roads, or a rail strike); 51% of shippers and 46% of 3PLs cited extreme volatility in labor or energy prices; and 41% of both shippers and 3PLs mentioned information and communication disruptions. In the past years, new threats, including social and public pressure as well as cyberattacks, have been added to the mix.
These statistics suggest that forming an effective supply chain risk management strategy needs to be a top issue for 3PLs and their customers. However, there is a discrepancy in how far along companies are on being aware of the impact and severity of risks. While 63% of shipper respondents said they have key metrics in place to quantify the impact of a disruption, the majority of 3PL respondents—57%—said they do not have such metrics in place.
Top mitigation strategies
There is no silver-bullet strategy for protecting the supply chains against such threats. Instead many shippers and 3PLs are taking a multipronged approach to limit the ripple effect of a disruption, utilizing several mitigation strategies. (Figure 1 lists some common supply chain risk mitigation strategies and indicates their level of impact.)
The top two tools that shippers and 3PLs use to mitigate and manage supply chain disruptions are supply chain visibility tools and partnerships, such as those with strategic partners and even competitors. Another tool that many are using is predictive analytics. However, fewer shippers and 3PLs are turning to financial products, like insurance, to mitigate and manage supply chain disruptions compared to the last time we asked about risk in 2013.
Even though companies are aware that they need to protect their supply chains from serious and costly disruptions, many are currently not implementing effective risk mitigation strategies, such as those shown in Figure 1. Only 47% of 3PLs and 34% of shippers said they are planning on investing in supply chain disruption mitigation and response capability within the next two years.
Shippers said the most common reasons for not investing in supply chain disruption mitigation and response capabilities are a lack of executive support (52%), a lack of understanding about the tools available for supply chain disruption response (48%), and a lack of available capital (44%).
Among 3PL respondents, the majority—50%—cited a lack of available capital as their top reason for not investing in mitigation and response capabilities. Other top reasons included the inability to build a business case for investments (48%) and a lack of understanding about the tools available (43%).
Additionally, just over one-third of both shippers (37%) and 3PLs (39%) said supply chain disruption mitigation and response capability has not been a problem for them in the past and is therefore not a priority.
The emerging need for supply chain finance
As supply chain disruptions continue to grow at an alarming rate, so too do the financial impacts. Finance also plays a key role in weighing the tradeoffs between various mitigation strategies, such as using expedited shipments or building up inventory.
Choosing the best and most cost-effective mitigation solution is already difficult, as managing the traditional cost components of international logistics are still a challenge for many companies. These decisions, however, have grown even more complicated recently due to changing trade agreements and regulations, which can drive wild swings in costs.
All of this points to the increasing need for a robust supply chain finance capability. In the upcoming "2020 Annual Third-Party Logistics Study," we explore this need across both shippers and 3PLs and where they stand in developing the capability.
However, that trend is counterbalanced by economic uncertainty driven by geopolitics, which is prompting many companies to diversity their supply chains, Dun & Bradstreet said in its “Q4 2024 Global Business Optimism Insights” report, which was based on research conducted during the third quarter.
“While overall global business optimism has increased and inflation has abated, it’s important to recognize that geopolitics contribute to economic uncertainty,” Neeraj Sahai, president of Dun & Bradstreet International, said in a release. “Industry-specific regulatory risks and more stringent data requirements have emerged as the top concerns among a third of respondents. To mitigate these risks, businesses are considering diversifying their supply chains and markets to manage regulatory risk.”
According to the report, nearly four in five businesses are expressing increased optimism in domestic and export orders, capital expenditures, and financial risk due to a combination of easing financial pressures, shifts in monetary policies, robust regulatory frameworks, and higher participation in sustainability initiatives.
U.S. businesses recorded a nearly 9% rise in optimism, aided by falling inflation and expectations of further rate cuts. Similarly, business optimism in the U.K. and Spain showed notable recoveries as their respective central banks initiated monetary easing, rising by 13% and 9%, respectively. Emerging economies, such as Argentina and India, saw jumps in optimism levels due to declining inflation and increased domestic demand respectively.
"Businesses are increasingly confident as borrowing costs decline, boosting optimism for higher sales, stronger exports, and reduced financial risks," Arun Singh, Global Chief Economist at Dun & Bradstreet, said. "This confidence is driving capital investments, with easing supply chain pressures supporting growth in the year's final quarter."
For example, millions of residents and workers in the Tampa region have now left their homes and jobs, heeding increasingly dire evacuation warnings from state officials. They’re fleeing the estimated 10 to 20 feet of storm surge that is forecast to swamp the area, due to Hurricane Milton’s status as the strongest hurricane in the Gulf since Rita in 2005, the fifth-strongest Atlantic hurricane based on pressure, and the sixth-strongest Atlantic hurricane based on its peak winds, according to market data provider Industrial Info Resources.
Between that mass migration and the storm’s effect on buildings and infrastructure, supply chain impacts could hit the energy logistics and agriculture sectors particularly hard, according to a report from Everstream Analytics.
The Tampa Bay metro area is the most vulnerable area, with the potential for storm surge to halt port operations, roads, rails, air travel, and business operations – possibly for an extended period of time. In contrast to those “severe to potentially catastrophic” effects, key supply chain hubs outside of the core zone of impact—including the Miami metro area along with Jacksonville, FL and Savannah, GA—could also be impacted but to a more moderate level, such as slowdowns in port operations and air cargo, Everstream Analytics’ Chief Meteorologist Jon Davis said in a report.
Although it was recently downgraded from a Category 5 to Category 4 storm, Milton is anticipated to have major disruptions for transportation, in large part because it will strike an “already fragile supply chain environment” that is still reeling from the fury of Hurricane Helene less than two weeks ago and the ILA port strike that ended just five days ago and crippled ports along the East and Gulf Coasts, a report from Project44 said.
The storm will also affect supply chain operations at sea, since approximately 74 container vessels are located near the storm and may experience delays as they await safe entry into major ports. Vessels already at the ports may face delays departing as they wait for storm conditions to clear, Project44 said.
On land, Florida will likely also face impacts in the Last Mile delivery industry as roads become difficult to navigate and workers evacuate for safety.
Likewise, freight rail networks are also shifting engines, cars, and shipments out of the path of the storm as the industry continues “adapting to a world shaped by climate change,” the Association of American Railroads (AAR) said. Before floods arrive, railroads may relocate locomotives, elevate track infrastructure, and remove sensitive electronic equipment such as sensors, signals and switches. However, forceful water can move a bridge from its support beams or destabilize it by unearthing the supporting soil, so in certain conditions, railroads may park rail cars full of heavy materials — like rocks and ballast — on a bridge before a flood to weigh it down, AAR said.
The North American robotics market saw a decline in both units ordered (down 7.9% to 15,705 units) and revenue (down 6.8% to $982.83 million) during the first half of 2024 compared to the same period in 2023, as North American manufacturers faced ongoing economic headwinds, according to a report from the Association for Advancing Automation (A3).
“Rising inflation and borrowing costs have dampened spending on robotics, with many companies opting to delay major investments,” said Jeff Burnstein, president, A3. “Despite these challenges, the push for operational efficiency and workforce augmentation continues to drive demand for robotics in industries such as food and consumer goods and life sciences, among others. As companies navigate labor shortages and increased production costs, the role of automation is becoming ever more critical in maintaining global competitiveness.”
The downward trend was led by weakness in automotive manufacturing, which traditionally leads the charge in buying robots. In the first half of 2024, automotive OEMs ordered 4,159 units (up 14.4%) but generated revenue of $259.96 million (down 12.0%). The Automotive Components sector was even worse, orders 3,574 units (down 38.8%) for $191.93 million in revenue (down 27.3%). Declines also happened in the Semiconductor & Electronics/Photonics sector and the Plastics & Rubber sector.
On the positive side, Food & Consumer Goods companies ordered 1,173 units (up 85.6%) for $62.84 million in revenue (up 56.2%). This growth reflects the increasing reliance on robotics for efficiency in food processing and packaging as companies seek to address labor shortages and rising costs, A3 said. And the Life Sciences industry ordered 1,007 units (up 47.9%) for revenue of $47.29 million (up 86.7%) as it continued its reliance on robotics for efficiency and precision.
The warm waters of the Gulf of Mexico are brewing up another massive storm this week that is on track to smash into the western coast of Florida by Wednesday morning, bringing a consecutive round of storm surge and damaging winds to the storm-weary state.
Before reaching the U.S., Hurricane Milton will rake the northern coast of Mexico’s Yucatan Peninsula with dangerous weather. But hurricane watches are already in effect for parts of Florida, which could see heavy rainfall, flash and urban flooding, and moderate to major river floods, according to forecasts from the National Oceanic and Atmospheric Administration (NOAA).
As it revs its massive engines with fuel from the historically warm Gulf of Mexico, Hurricane Milton could possibly hit Tampa as a Category 5 storm, according to the FEWSION Project at Northern Arizona University, which tracks supply chains throughout the country.
With that much power, Milton could shut down the port and seriously disrupt the fuel supply into western and central Florida, which could then hinder recovery efforts. That’s because fuel supplies for much of Florida, especially central Florida, arrive from Texas and Louisiana through the Port of Tampa. That means that anyone who depends on generators or fuel for critical functions should plan for an extended period without access to fuel. And recovery crews and logisticians should consider bringing their own fuel when responding to the storm, FEWSION said.
One of those disaster recovery efforts will be led by nonprofit group the American Logistics Aid Network (ALAN), which is already mobilizing its forces for Hurricane Milton, even as it devotes other energy to the Hurricane Helene response. “In an ideal world we’d have plenty of time to focus all of our efforts on Hurricane Helene clean-up and recovery,” Kathy Fulton, ALAN’s Executive Director, said in a release. “But in the real world, major hurricanes don’t always wait for their turn. As a result, we are officially activating for Hurricane Milton.”
In the meantime, many weary residents of the region are thinking of moving to another part of the country instead of getting hit by vicious storms several times a year. Nearly one-third (32%) of U.S. residents aged 18-34 say they’re reconsidering where they want to move in the future after seeing or hearing about the damage caused by Hurricane Helene, according to a survey commissioned by real estate brokerage Redfin.
“Scores of Americans flocked to the Sun Belt during the pandemic because remote work allowed them to take advantage of the region’s relatively low cost of living. Some thought Appalachia was insulated from hurricane risk, not realizing that the area is prone to flooding and that hurricanes can sometimes cause flash flooding far away from the ocean,” Redfin Chief Economist Daryl Fairweather said in a release. “Americans are beginning to realize that nowhere is truly immune to the impacts of climate change, and we’re starting to see that impact where people want to live—even people who haven’t experienced a catastrophic weather event firsthand.”
The report is based on a commissioned survey conducted by Ipsos on Oct. 2-3, fielded to 1,005 U.S. adults. After making landfall in Florida in late September, Hurricane Helene wreaked havoc across Appalachia, becoming the deadliest storm to hit mainland America in almost two decades. In North Carolina, the death toll has surpassed 100 and the city of Asheville has been devastated.
Shippers and carriers at ports along the East and Gulf coasts today are working through a backlog of stranded containers stuck on ships at sea, now that dockworkers and port operators have agreed to a tentative deal that ends the dockworkers strike.
In the meantime, U.S. importers and exporters face a mountain of shipping boxes that are now several days behind schedule. By the latest estimate from Everstream Analytics, the number of cargo boxes on ships floating outside affected ports has slightly decreased by 20,000 twenty foot equivalent units (TEUs), dropping to 386,000 from its highpoint of 406,000 yesterday.
To chip away at the problem, some facilities like the Port of Charleston have announced extended daily gate hours to give shippers and carriers more time each day to shuffle through the backlog. And Georgia Ports Authority likewise announced plans to stay open on Saturday and Sunday, saying, “We will be offering weekend gates to help restore your supply chain fluidity.”
But they face a lot of work; the number of container ships waiting outside of U.S. Gulf and East Coast ports on Friday morning had decreased overnight to 54, down from a Thursday peak of 59. Overall, with each day of strike roughly needing about one week to clear the backlog, the 3-day all-out strike will likely take minimum three weeks to return to normal operations at U.S. ports, Everstream said.