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    Break the Bottleneck: Global Logistics in a Disrupted Supply Chain

    After the global logistics and freight industry was hit hard by the Great Recession in 2008, they took one lesson into the next decade: Optimize. Get lean, and get efficient. The trucking, rail, air cargo and maritime industries grew slowly but steadily, integrating new supply chain technologies to maximize efficiencies and keep costs down rather than add significantly to their fleets or warehouse footprint. Keeping operations tight and resisting the urge to expand too quickly helped logistics companies successfully navigate small global logistics disruptions as they came — like lower-than-expected demand, the rise of e-commerce and increasingly common weather phenomenon.

    When COVID-19 first hit and demand fell off a cliff, it seemed logistics companies had made the right call by not massively expanding capacity post-recession. Then, as consumers started spending the money they would have spent on events, trips or restaurant meals on goods, that outlook quickly changed.

    Bottlenecks developed at the Ports of Los Angeles and Long Beach in California, collectively responsible for processing about 40% of U.S. imports, and provided a visual representation of the many logistics breakdowns caused by the pandemic. When delays were at their worst in fall 2021, ships piled up in the Pacific Ocean and average time at anchor grew to 18 days, according to Bloomberg. Shipments across the ocean dropped from an on-time average of about 80% in 2019 to 35% (as of late November 2021). While these challenges were headline grabbing, they have been somewhat resolved. Ships are now waiting only two days, on average, to dock at the Ports of Los Angeles and Long Beach. However, according to Seabury, global carrier schedule reliability remains around an all-time low of 35.9% (as of April 2022).

    Unclogging the logistics pipeline will take time and patience. In the long term, companies must think about how best to optimize global logistics to prepare for the next inevitable disruption.

    First, though, let's dive deeper into the disruptions within each piece of global logistics. A bottleneck in any one of these segments — from port closures to labor shortages — would have an impact on the others. A bottleneck in all of them is grinding the system to a near halt.

    How Is COVID-19 Disrupting Logistics?

    The pandemic is truly at the heart of every supply chain and logistics challenge we face today. Outbreaks of the virus itself are still causing problems for logistics operations worldwide.

    While the availability of vaccines, vaccination rates and the spread of the omicron variant have all played a role in the effects of the virus on different parts of the world, strict quarantine rules in some regions are periodically closing off important logistics hubs with little to no notice. 

    The persistence of COVID-19 is also driving extensive delays and cancellations in the commercial air market. Before the pandemic, commercial airlines carried about 40% of global air cargo. As of June 2022, some international travel restrictions are still in place and virus-related flight cancellations have become the norm in countries with little or no restrictions, so the airline industry has yet to fully recover. However, passenger airplane belly cargo capacity is approaching normal levels, down only 6% from 2019 levels.

    Once products and components land, though, finding enough labor to get them to the next step of the supply chain is another challenge compounding the logistics problem.

    How Are Labor Shortages Disrupting Logistics?

    As in most industries, logistics is dealing with a labor shortage across all segments. From long-haul truck drivers to longshoremen to warehouse pickers, there's a need for skilled and manual work across the board to move freight through the supply chain.

    At ports, railroads and warehouses, a lack of long-haul truck drivers has slowed down the ability to load and unload product. When they arrive at ports, truckers do not know how long they will be waiting to pick up their next load of cargo, and they are not paid while they wait. This system is leading many drivers to take last-mile delivery jobs (driving for logistics providers like FedEx, UPS or Amazon) instead of long-haul.

    Consequently, the average dwell time of a container, or the amount of time it sits at a port before being loaded onto a truck, has increased at U.S. West Coast ports from under three days pre-pandemic to just over six days through April 2022, the most recent month for which data is available. A lack of longshoremen has added to the bottleneck at ports, where they are responsible for using massive cranes to lift the metal containers off a docked ship and place them onshore for a truck or train to pick up. This shortage has contributed to a new high in dwell time for containers being loaded onto rail — 9.6 days.

    Warehouses are feeling this same constraint. As of April 2022, the warehouse and transportation industry had a record-high 575,000 job openings; turnover rates are high in the industry, and there are signs that some companies may have tapped out the potential warehouse labor forceRetail robots and other automated systems have eased the strain on warehouses, especially for repetitive tasks like picking and packing.

    For the transportation industry, however, the disparity between the supply of labor and the demands of consumers is merely adding to the snarls on the roads, at the ports and in the oceans.

    How Are Transportation Issues Disrupting Logistics?

    For more than a year, instead of spending money on a 10-day cruise or some other type of experience or service, consumers spent their expendable income on physical goods — sending demand soaring. Between 2020 and 2021, U.S. retail imports rose 18%, jumping from 22 million TEUs (20-foot equivalent units, or the size of a container ship) to 26 million. For context, the growth between 2019 and 2020 was less than 2%, and there was a slight dip in imports between 2018 and 2019.

    The National Retail Federation expects the strong growth rate will hold for 2022, with U.S. imports setting a monthly record in May 2022. However, that same month, sky-high inflation and a return to pre-COVID services like travel, entertainment and dining out caused consumer spending on goods to drop for the first time in the calendar year, meaning pandemic-era demand could finally be cooling off.

    Still, demand's current rate has meant suppliers, OEMs and retailers need to move more components and products across continents than ever before to keep up. Unsurprisingly, this is causing huge pressure on companies in every part of the supply chain. The fact that transportation and logistics issues are keeping CEOs up at night hasn't changed; what those issues look like, however, has.

    The container ship problem generated endless headlines in the fall of 2021, and for good reason. Containers sat at anchor and in ports across Europe and North America for 10 to 13 days as opposed to the typical one day. The overwhelming flood of goods coming from Asia into the Americas primarily caused the backlog of containers, along with the shortage of truck drivers to pick up those goods.

    Also playing a role was the equipment shortage — specifically, a chassis shortage — at ports. Empty containers were returned to the yards where truckers originally picked them up and sat on chassis for days, waiting for an available container ship to take them back to Asia. Without chassis to attach them to trucks, containers are sitting even longer at ports — adding another slowdown to the logistics equation.

    Logistics professionals are also moving shipping lanes as necessary to avoid clogged routes. Shipping companies are pivoting to smaller ports as large ports become too backed up to take on more cargo. Companies are also being forced to look at options that they previously would have never considered but, considering the port backups, could result in getting components or products to their next destination faster. 

    No matter the mode of transportation, the cost has increased dramatically throughout 2022 thanks to the spike in oil prices. Shippers are now paying record fuel surcharges as diesel's price relative to gasoline continues to increase. 

    While diesel inventory is lower than usual, the pain at the pump is one of the many impacts the Russian invasion of Ukraine has had on logistics.

    How Can We Optimize Global Logistics in a Highly Disruptive Supply Chain?

    People

    Individuals with the expertise to collect, analyze and act on data are key to making logistics decisions, especially when the waters are rough. If you have two possible routes, what are the transit times of each? When is the product needed at the destination? What is the tonnage and value of the shipment? What is the on-time percentage of the logistics carrier in question, and what technology are they using? Answers to all these questions will help you achieve the ultimate goal of logistics: improve on-time delivery, reduce the cost of the shipment and reduce the transit time of the shipment.

    Achieving the goals of lower logistics costs and effective logistics management starts by improving the experience of logistics and warehousing workers. In warehouses, knowing when and how much product to expect will help create more accurate and reliable employee scheduling; fewer shifts will need to be canceled or scheduled at the last minute. Long-haul truck drivers can plan to show up to a port when a container is ready to be unloaded and not be stuck waiting. An optimized transportation management strategy, from choosing the right driver to analyzing route options to minimize slowdowns, can help improve the retention rate of truckers and begin repairing the industry's labor shortage.

    Processes

    Processes can help reach the logistics goal of on-time deliveries, lower-cost shipments and quicker transit times. The name of the game is visibility. Businesses want the same level of information about the status and location of their goods in production as consumers do about theirs on the way to the mailbox.

    From a logistics perspective, this looks like the ability to know not only which container ship your components are on, but where on the ship they're sitting, exactly when they make it to the port, when they're unloaded, and where they are in the warehouse. Gaining the level of visibility companies want into the logistics process takes a sophisticated digital system of sensors or tags to indicate where shipments are at any given point.

    Technology

    The pandemic accelerated the already-growing use of automated robots in warehouses for repetitive activities like picking and packing. 

    Ports are just beginning to invest in automation and other digital technologies, a consideration that could grow with the increasing longshoreman shortage. A 2021 report from the International Transport Forum found that only 53 container terminals worldwide have automated capacities, or 4% of global container capacity. Currently, most automated systems are found in the container yard, to lift or stack containers. Before adopting automated or digital technologies at random, ports should first analyze their pain points to determine where those systems could most benefit their operations.

    With people, processes and technology in place, logistics will be the final link in your resilient supply chain.

    How Do Optimized Global Logistics Contribute to Supply Chain Resiliency?

    A resilient supply chain doesn't break when it's tested. It bends, then quickly bounces back. Optimizing global logistics by making them predictive and proactive is crucial to building a supply network that can withstand the next disruption. 

    First, work with your shipping partners early on pricing and agreements. Setting up three-year agreements, rather than short-term deals, locks in pricing so you know what's coming down the pipeline in the months ahead. By having those agreements in place, you're creating partnerships you can lean on. The freighters you're working with likely know their routes better than anyone; ask them questions, learn from them, and work with them to find creative solutions when logistics issues arise.

    Then, like you would have multiple suppliers for a component, have multiple supply route options. Changing ports, putting three or four modes of transportation together to move products: These are not steps we would have taken before March 2020, but the pandemic has likely forever changed how we approach logistics.

    Be flexible. Be creative. Most importantly, be proactive. With a visible, predictive logistics plan in place, not even a container ship stuck in the Suez Canal can send your supply chain off course.