Overcoming the 5 Biggest Challenges Supply Chain Directors Are Facing Right Now

Aug 8, 2022
Supply Chain

Table of content:

Oil and container ships anchored in the Singapore Strait, awaiting port availability

In recent years, the frequency of disruption has been increasing. At the same time, they’re getting harder to predict and are impacting us more. Right now, across the globe, supply chain directors are navigating an unprecedented combination of challenges:

1. Major ports are still experiencing logjams

Across the US and Europe, major ports are still congested. Global port congestion is set to continue until at least early 2023 and keep spot freight rates elevated. Charterers have been urged to switch to long-term contracts to manage shipping costs. In addition, industrial action along the logistics chain is spreading globally and the effects of further COVID lockdowns in places like China, and its impact on economic activity, is still a threat. Shipping demand itself is still buoyant, supported by limited capacity due to ongoing port congestions, and freight rates are high.

However fewer containers are being loaded onto ships, with Danish shipping giant Maersk reporting that it loaded 7.4% fewer containers onto ships in the second quarter versus a year earlier. Surplus containers are reportedly already starting to pile up at some warehouses as demand begins to wear out in places, resulting in rising demurrage and detention charges, and contributing substantially to operational costs for shippers. In fact, demurrage and detention charges have increased by 12% worldwide. In any case, significant new capacity and eased congestions will likely alter the shipping landscape in the coming months.

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2. Driver, container, and materials shortages persist

Supply chains are being squeezed by shortages of key resources, from personnel, to containers, key components and raw materials. Despite a resurgence of economic activity post pandemic, continued strain from supply chain disruptions is keeping prices of components and materials high, including chip shortages which have been affecting more than 150 industries for almost two years.

Port congestion and longer container wait times are resulting in higher ocean shipping spot rates on some trade routes, after a previous decline while demand for containers was softening. Container pricing for the China to the U.S. East Coast route is back up to $10,000 as more vessels arrive and congestion grows. Maersk recently reported that profits doubled in the second quarter due to the soaring freight prices from persistent bottlenecks on trade routes. The company’s revenue rose to $21.7 billion in the second quarter, up from $14.2 billion a year earlier. The container shortage and high pricing are expected to cause even greater challenges in the months ahead, as we enter the month of August, traditionally peak season for ocean shipping in the lead up to the holiday period.

For road transport, driver shortages persist in many important markets. Despite higher wages in 2021, tight labour markets and high post-pandemic demand continue to feed shortages. IRU’s annual driver shortage survey shows that unfilled commercial driver positions continue to increase at alarming rates across the globe. The survey found that truck driver shortages continued to increase in all regions in 2021 except Eurasia. Millions of positions remain unfilled across the world, according to IRU Secretary General Umberto de Pretto, with a 42% increase in shortages across Europe from 2020 to 2021. Open unfilled driver positions in the UK reached 100,000, and a staggering 1.8m in China.

3. Energy prices are soaring, impacting transportation costs

European countries have suffered an increase in gas prices of 700% since last year, pushing the continent to the brink of recession. UK energy bills are forecast to hit £3,850 as Russia cuts gas supply further. Consumers have also been warned that bills of more than £3,500 a year could last ‘well into’ 2024. Steep increases in the cost of energy are raising supply chain transportation costs, making it especially tough for logistics service providers who pre-negotiated fuel rates in contracts before price rises. In the US, data from the US showed an 18.3% jump in shipping by truck and a 29% surge in ocean freight costs from January of last year, the largest 12-month increases on record.

4. Inflation is hitting records in major markets and in turn driving up the cost of transport.

Higher energy prices are also affecting the cost of goods sold for many sectors, especially food and beverage companies, due to double digit increases of agricultural commodity prices. This has led to inevitable price rises for consumers. After decades of low inflation, rapid rises is shifting the economic, social and political landscape. In Britain, McDonalds, always a popular yardstick for inflation, lifted the price of the popular cheeseburger over the £1 mark - in a 20% hike from 99p to £1.19. The fast food chain pointed out that this was the first increase in 14 years, as it bowed to pressures from higher input costs such as food and energy.

A number of reputable global FMCG brands, including Reckitt Benckiser, the firm behind health and hygiene brands from Durex to Dettol, and Kraft Heinz, have put up prices by as much as 12.4%. Both Reckitt and Heinz have lifted their forecasts for the year, after their price rises helped them beat expectations. Overal, across the last 12 months, the US all items index increased 9.1% before seasonal adjustment.

The EU has hiked its inflation forecast to 8.3% for 2022 as Russia-Ukraine war drives soaring prices. In May, the European Commission expected inflation in the euro area to hit 6.1% in 2022, before falling to 2.7% in 2023. Now, both forecasts have been revised up to 7.6% and 4%, respectively. Many economists are pricing in a recession for the euro zone either later this year or in 2023, however for now European officials have avoided discussing the possibility.

All of this general inflation also leads to increased transport costs, creating a ripple effect for consumer goods prices, and in turn propels a vicious cycle, as increased transportation costs contribute to further inflation and higher prices for consumers.

5. Sustainability has never been higher on the agenda

As temperatures soar across the Northern hemisphere summer months, the pressure on organizations to adopt meaningful sustainable business practices from consumers and governments has never been greater. At the last UN COP26 climate change conference, a clear message was sent to global corporations: align your business strategy to sustainability targets and reap monetary rewards. Drag your feet and you’ll lose out.

However, organizations are discovering that sustainable practices are also good for business, with 83% of C-suite executives surveyed in the latest McKinsey Global Survey, believing that ESG programs will generate more shareholder value in five years’ time than they do today. And in research conducted by Accenture on responsible leadership, companies with high ratings for ESG performance enjoyed average operating margins 3.7 times higher than those of lower ESG performers. Shareholders also received higher annual total returns to shareholders, outpacing poorer ESG performers by 2.6 times.

In the United Kingdom, businesses are now advertising twenty times more for Director of Sustainability roles than two years previously, says Natalie Douglass, Director at NSCG. Analysis of all UK job postings by people advisory firm New Street Consulting Group (NSCG) shows the average monthly vacancies for sustainability directors has jumped from 10 per month at the beginning of 2020 to more than 200 per month this year.  

How high-quality visibility data helps tackle current supply chain challenges

As if this all wasn’t enough, Chief Shipping Analyst at Ocean and Air freight research firm Xeneta Peter Sand warns that, unsurprisingly, global shippers should be prepared for more volatility in the coming quarters. In fact, a recent Gartner survey* found that 68% of supply chain leaders are constantly responding to high impact risk events for which they weren’t prepared. The question is, what can be done, if anything, to combat these problems, and keep supply chains moving as fluidly and effectively as possible while minimizing their impact on profit and brand reputation? How can organizations better weather the storm in a supply-constrained market?

Reliable, multimodal real-time visibility and predictive insights for supply chain transportation are helping organizations to reduce supply chain related costs, improve personnel productivity, keep customers happier and support leaders in making smarter, more timely decisions. Access to such insights is playing a critical role in determining organizations’ success, improving the ability of supply chain actors to sense and respond to disruptions, in more timely ways, with access to better information to improve decision making. So are the ecosystem orchestration capabilities that such platforms bring, which make it possible for digital ecosystem partners to come together, across products, factories and facilities, devices, platforms & systems, transportation, customers, and partners, to collaborate more effectively, in ways never possible before.

→ Reduced transport costs

With high costs being a main consequence of port congestion, driver and materials shortages, energy shortages and spiralling inflation, organizations are looking for ways to minimize them as much as possible to maximize profitability. Better visibility over shipments helps shippers, LSPs and carriers all reduce transport costs. Shippeo’s real-time transportation visibility platform (RTTVP) contributes to cost reduction in a number of ways, across multiple transport modes:

  • Highly accurate, advanced warning of shipment delays from advanced AI/ML ETA algorithms give organizations more certainty around:

            (a) inventory replenishment, making it possible to reduce buffer stock and lead times to enable a 10-30% cost saving

            (b) just-in-time manufacturing lines, reducing expedited shipment fees for road freight and ocean cargo (by around 25-30%)

  • Performance data, including metrics like OTIF for road or average transshipment times for ocean, facilitates more effective contract price negotiations with carriers.
  • More accurate port arrival data for containers helps streamline pick-up by motor carriers, decreasing detention and demurrage expenses for ocean containers by 10-25%
  • Real-time ETAs also help shippers gain greater transparency of motor carrier operations:

            (a) streamlining operations at delivery sites, leading to a 30% reduction in extra costs

            (b) reducing disputes on carrier accessorials and freight tariff reductions by between 0.5-1%

            (c) reducing labor costs relating to dispute resolution by up to 75% and carrier waiting time penalties by up to 30%

→ Increased productivity and efficiency of operations and personnel

Real-time information on incoming shipments offers a number of efficiency and productivity improvements for teams throughout supply chains, from the office and customer care, to warehouse staff and truck drivers:

  • Operations teams are provided with more accurate ocean freight arrival and departure times, improving personnel productivity by reducing manual detective work by 20-50%
  • Logistics team labor costs spent by motor carriers to complete ‘incident forms’ due to tracking issues are reduced by 60-70%
  • Identification of problems and handling of freight claims is improved, thanks to better traceability of shipments across all transport modes
  • Average labor hours spent by motor carriers on delivery inquiries is reduced by 20-40%
  • For fresh or promoted products, RTTV can increase turnover by up to 2% by enabling smoother in-store operations thanks to precise road shipment ETAs.
  • Plus, by combining visibility data across all transport modes, supply chain managers can obtain an integrated, end-to-end view of shipments, greatly improving overall agility and resilience, especially in the face of fluctuating demand (or supply) levels

→ Happier customers

While RTTV delivers a lot of value in the form of cost reduction and productivity improvement, the positive effect on customers is similarly valuable. By sharing accurate and timely information on their deliveries, customers have more data and insights to react faster to the unexpected, helping them feel more in control. Shipment visibility offers a superior customer experience and is increasingly becoming an expected supplier capability, thanks to:

  • Reduced stock-outs thanks to more advance notice of inventory shortages risk increases customer loyalty
  • Accurate ETAs and shipment status boost customer experience for freight recipients, regardless of whether you’re shipping by road, rail, ocean or air, having a positive effect on net promoter score
  • Reduced churn contributes to a 1% increase in sales on average

→ CO2 and GHG emissions reporting for more concrete reduction strategies

The Carbon Visibility capabilities of RTTVPs makes it possible to accurately measure the CO2 and greenhouse gas emissions being generated across supply chain transportation, which is considered one of the largest contributors to carbon footprint within value chains. As the expression goes, you can’t improve what you can’t measure, and comprehensive dashboards and insights on emissions create a solid starting place for making meaningful improvements. Shippers, LSPs and carriers are able to:

  • View all CO2 emissions for upstream and downstream transport and distribution activities in one place, without having to manually consolidate reports from carriers.
  • Benefit from a consistent framework for comparing performance across carriers, regardless of the methodology they use to calculate emissions.
  • Create robust CO2 reduction plans that leverage more granular emissions data.

Discover how much value a RTTVP could deliver your organization

If there are any positives to be taken from such turbulent times for supply chains, it’s that crisis always creates change. In addition to all of the benefits outlined above, with so much uncertainty month-to-month, even week-to-week, it makes a lot of sense to be able to switch on and scale up the services and capabilities that businesses need, as and when they’re needed. This need favors operating expenditure over capital expenditure, with flexible and scalable subscriptions and licenses enabling greater agility than investing in new infrastructure with an uncertain breakeven period. Supply chain professionals will likely favor projects that enhance organizational agility while also offering a very quick return on investment.

Shippeo’s cloud-based visibility platform helps customers avoid capex for IT infrastructure. The platform exchanges real-time information with all relevant systems used by a shipper and their carriers. Using APIs (Application Programming Interface) as connectors, any existing shipper and carrier systems (ERP, TMS, WMS) are integrated with truck telematics systems, IoT devices or smartphone apps, ocean carriers, as well as rail freight companies and air shipping companies, creating a Multimodal Visibility Network, collecting real-time data from all modes of transportation across the supply chain. The Shippeo platform is already connected to over 151,000 carriers in 75 countries and our onboarding team adds many more each week. In addition, the nature of our solution itself (increasing visibility of operations) can enable existing transport infrastructure to be better utilized, potentially avoiding further capex.

Discover how much value Shippeo’s leading RTTV platform could bring to your business. Get in touch with one of our experts today.

*(n=262, Source: 2020 Gartner Supply Chain Signature Series Risk Survey)

Overcoming the 5 Biggest Challenges Supply Chain Directors Are Facing Right Now
Overcoming the 5 Biggest Challenges Supply Chain Directors Are Facing Right Now
Overcoming the 5 Biggest Challenges Supply Chain Directors Are Facing Right Now

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