After months of limited activity during the early part of 2020 due to the Global pandemic, container demand finally resurfaced with a vengeance as global consumers regained their feet. The resulting chaos has proven yet again that supply chains are not like rubber bands. They do not have natural elasticity and when we immediately pivot from a significant downturn to an unexpected and very aggressive global demand cycle there will be issues. On a smaller scale we had seen this play out after strikes and shutdowns, especially on the U.S. West Coast in the early part of this century. It took months to reset the Transpacific supply chain after only a two week shutdown in 2004. Considering the global nature of the 2020 Pandemic we must assume that there will be significant changes in how we manage our international and national supply chains. There will be a New Day in logistics management that will require that multiple aspects of the supply chain be addressed.
Managers of complex supply chains and sourcing options have to realize that making changes to meet these new challenges will take time. They need to think in terms of years and not months when considering plans and the formulation of a revised strategic road map. Solid planning predicated upon expert advice and information will be critical. Leaders must think long term and use all available resources to try to avoid the unintended consequences of inadequately planned or rushed decisions. The current concerns will require disciplined planning and patience.
Many are suggesting that there will be massive and immediate changes in how we conduct our International business. There are many that prophesize dramatic shifts in the short term. While we need to acknowledge that there is a New Day, given the complexity of our International and National supply chains, change will by necessity be relatively slow and methodical. Planning and a full understanding of the ramifications and potential unintended consequences of change will be essential. This will be especially true of sourcing changes that may be contemplated. The complexity of these sourcing decisions will require in depth planning and real consideration of long-term options. Great care must be taken not to jump on short term solutions that develop from today’s issues. Rather, we must look well beyond a year or two’s planning threshold.
Companies across the world, including here in the U.S., are examining their sourcing strategies after experiencing major disruptions that were magnified as a result of having a heavy reliance on one market. There are calls to re-shore or near-shore product and to diversify sourcing strategies. While these strategies need to be addressed, any changes need to incorporate raw material sourcing, manufacturing expertise, corporate social responsibility goals and long-term company profitability. These changes take time to develop and strategies need to evolve into long term plans that include broad Corporate sourcing strategic considerations together with supply chain design.
In ocean transportation we know that pricing has been a challenge and service levels are at an all-time low for all Beneficial Cargo Owners (BCOs). The new dynamic with container carriers which are now organized into a relatively small number of Alliances, as well as NVOs that rely on their services, will take skillful, knowledge based negotiations. These will be essential to create an effective and long term balance between price and affordability to the BCO, with acceptable service levels. Redeveloping relationships with carriers and NVOs will be critical as the basis for a new understanding of the International transaction. In this New Day it will be critical to establish clear understanding of requirements and capabilities. Detailed knowledge of how providers see these challenges as well as a clear view from the buyer’s side is essential for success. Again, experts with years of experience in these type negotiations are critical for success.
In the U.S., chassis are another matter of significant concern. The model is broken and does not work. Industry’s attempts to create a real neutral pool failed because of the actions of some. These failures are now compounded by the three major chassis rental companies, all vying for market dominance and profitability. In our capitalistic society, not bad motives, but not useful when we need to consider that a chassis is a real “utility” and a generic product meant to serve the international and intermodal supply chain. Change in how these assets are managed and made available to the shipping public is essential. BCO’s can no longer rely on ocean carriers to provide timely chassis support and plans need to be formulated.
As we consider the changes that are inevitable, we must be careful to first project what the real needs will be when the supply chain is back to some semblance of normalcy. From there, we need to establish a new sourcing and supply chain base. The Industry does not need to face a situation where in the future we have overbuilt warehouses and have excess containers piled up in our Port areas. We do not need to make snap decisions on sourcing only to find they do not work effectively. Managers and their advisors must often take a deep breath, really survey the situation and project a normal global demand environment. This requires planning, experience and innovative forward thinking. We need to develop scenarios for assessing the impacts of strategic options and intended/ unintended consequence of possible change. Risk assessments must always be an essential part of our deliberations and forward thinking.
In this New Day energy use, conservation and other environmental goals must be developed and implemented as an integral part of any plan for the future. 2021 will be the year where the environmental pressures on International shipping finally get serious. Air Quality is still a major global Health concern. The air around almost all our major Port facilities is still unacceptable, and more change is necessary. 2021 is also the year when carbon reduction targets will really begin to be noticed and become part of the decision process. Decarbonizing an Industry like International shipping will be difficult and costly, and those costs will ultimately be borne by the BCOs. The ultimate consumer, the citizens of the world, are becoming ever more mindful of the environmental challenges and concerns. They will ultimately support businesses that work to improve their environmental footprint and move to zero carbon over the next decades. Supply chain and trade is a big part of these initiatives and businesses that hope to survive into the future must consider environmental issues in each and every decision, especially supply chain and sourcing. We must also look beyond our own structures and consider goods and services we purchase such as rail, trucking and warehousing. We need to consider packaging and how our assets and products are recycled. We can expect carbon taxes and cap and trade type schemes to become the norm if BCOs do not work effectively to reduce carbon and enhance air quality. All negotiations and plans must have a serious and definable environmental element that will deliver measurable benefits year after year. New Day advisors have been at the forefront of many of the innovative changes that have already occurred and can provide valuable and important insights into future planning directions and considerations. Organizations that do not take their social and environmental responsibilities seriously will not move forward into the next decade.
Most logistics managers we talk to all indicate that their “plates are full” and they are consumed with day to day issues and challenges. How to manage the change with existing resources while adding concepts of increasing concern at all levels of management? Clearly, as we look at what is happening on a global basis, change is necessary in the area of sourcing, supply chain elements and handoffs, inventory management, asset and product visibility, control of carrier relationships, regulatory oversight, chassis management and availability in the U.S., energy and environmental concerns, just to mention a few. How does a logistics executive cope with all these issues with limited and often still virtual staffs? Innovative external experts with decades of experience must be considered to help manage a robust and innovative planning process to take International sourcing and supply chain into the next dimension.
