Demand for shipping has far outpaced supply, leading to a crunch up and down the supply chain that’s impacting businesses, consumers, and the wider economy.
Over the past 15 months, we’ve been writing on the Argentus blog about the immense impacts that the COVID-19 pandemic has had on global supply chains – particularly, as you might expect of a recruitment firm, from the perspective of talent and skills. From supply disruptions, to rapidly changing consumer behaviour leading to increased difficulty for demand forecasting, to challenges companies face when protecting their front-line supply chain workers, the pandemic has raised a whole host of challenges — making supply chains one of the more disrupted aspects of the economy. We’ve interviewed executives in Retail, Public Sector, Procurement and other industries and disciplines to get a sense of how the industry is reacting, not only to navigate the immediate challenges, but to future proof themselves from future disruption.
Over a year into the pandemic, supply chain professionals continue to perform heroics as the challenges continue to mount – both from new disruptions, and from knock-on effects from those that have come before.
The latest major disruption that has the entire supply chain world buzzing?
The massive global shipping squeeze.
If you work in supply chain for physical goods, you don’t need to hear from us how difficult this challenge has been – you’ve been living it the past several months. But still, we want to take a moment to talk about this major emerging issue, how it’s set to play out of the coming months, and ways that companies can respond. Particularly – as per usual on the Argentus blog – from the perspective of talent.
So what’s the issue?
Big-picture, consumer behaviour rapidly changed at the outset of the pandemic. After the initial supply shocks to certain commodities (think the toilet paper shortages of March 2020), consumers under lockdown began radically changing their spending habits in the medium-term to correspond to a shifting way of life. Demand for now-restricted services fell – cruises, travel, hotels, theatre tickets, fine dining. Demand for physical goods rose – everything from office furniture to groceries to exercise bikes – as people tried to make the most of staying home.
In their story about the shipping shortage, the CBC quoted shipping analyst Alan Murphy, who detailed how this changing demand has massively disrupted the global shipping market. In short, increased demand for physical goods – as well as China’s massively growing export market – has made shipping containers scarce, and shipping more expensive, harder to come by, and more bottlenecked.
On one level, it’s a simple matter of supply and demand. But the way this disruption — which some have termed a full blown crisis – has played out has exposed just how complicated contemporary supply chains are. And, in many cases, how fragile. Knock down one domino, and others fall.
Here’s an example: Every year, a huge volume of finished goods are shipped from Asia to North America. Then, the empty containers are transloaded and move into other parts of the country to be loaded with raw materials (for example agricultural products), before heading back onto shipping containers bound for Asia. Now, demand for containers has grown so high that companies are shipping them back empty to Asia, just to shave a few days off the turnaround time. Shipping empty containers back to China has become so profitable that companies are hurrying to load empty containers rather than waiting for them to be refilled.
Here are a few of the big-picture facts of the crisis:
- According to the Wall Street Journal, around 60% of global container shipments in March were delayed. Two years ago, only around 30% of shipments were delayed.
- Container rates are going up at a historic pace. Shipping rates from China to the U.S. West Coast have gone up 228% compared to the same period last year, and these rates are expected to stay high for most of the rest of the year.
- Ships are stacked up at major U.S. Ports in Los Angeles and Long Beach, as well as in Europe and other global locations.
- Shipping companies themselves are reaping major profits. For example, Maersk reported a net profit of $2.7B in the first quarter, a massive increase over their $197M profit reported in the previous year.
- The massive bottlenecks are causing supply shortages for many common goods, everything from oil to machine parts to bicycles to ketchup packets. They’ve also caused shortages of the goods themselves required for shipping, including wood pallets– disrupting consumer and business buying alike.
- As detailed in a New York Times analysis of the crisis, these shortages are raising prices for many common household goods, contributing to inflation.
In short, a year into the pandemic, many supply chains are in a knot. And these these issues reverberate up and down the wider economy – something that’s a boon for shipping companies amounts to price and availability shocks for consumers. It’s yet another example of how vital supply chain management is to today’s global economy.
So how can companies react?
As we mentioned above, on one level these disruptions are basic supply and demand problems – wider factors that are outside of any one organization’s control, that will eventually abate. In addition, many of the issues are “baked in” at this point, and the shifts required to address them are more long-term. That being said, there are some key ways that companies are shifting their supply chain priorities to respond to these ongoing disruptions – as well as future-proofing themselves against future disruptions.
- Investing in more resilient supply chains. Many companies that have been most successful in navigating these disruptions have radically shifted their supply chain focus from efficiency (think just-in-time manufacturing and inventory strategies) to resiliency – by broadening supplier bases, and adjusting inventory levels to avoid stock-outs if supply is disrupted.
- Prioritizing supply chain visibility. Disruptions are easier to deal with the sooner you can see them coming. Some companies still don’t have full end-to-end visibility into their supply chains, and are blindsided by delays that could have otherwise been accommodated for.
- Building supply chain agility. As detailed in this Manufacturing.net interview with supply chain agility expert Hank Canitz, companies need to invest in people, processes and technology that allow them to rethink strategy on the fly.
The shipping container crisis – as well as its knock-on effects – is a tremendously complex set of issues, with different implications all along the functional supply chain spectrum. This is just an intro.
As we mentioned, responding to all these challenges requires investing in people, processes, and technology. And if you’d like to accelerate your capability on the people piece, reach out to Argentus! We’ve been helping some of Canada’s top companies hire in supply chain for 20 years, and have spent the past year focused on helping companies hire the best people to navigate these – and other challenges.