Last week, SFIA hosted The Shipping Dilemma webinar, featuring Russ Romine, Vice President, Global Transportation Services at LEGACY Supply Chain Services, a leading 3rd party provider of solutions for companies with dynamic, omni-channel supply chains in North America.

The webinar covered many areas from what led us to where we are today, the current market and COVIDs effect on shipping, best practices and indicators in a post-COVID world, and what to expect moving forward.

The shipping industry is seeing a lot of uncertainty and fragility in the supply chain — many in the industry are out of position due to sourcing moves and large capacity that was in-process and already put into the market, and then there was no preparation for Covid. While many carriers were able to mobilize and strengthen already-formed alliances to help make it through, we are still seeing volumes up and capacity down as a lot of uncertainty and reliability of the supply chain is in question for many importers.

For example, air freight volumes are up 12% from pre-covid globally and 9% transpacific. But capacity globally is down 10%; transpacific is down 19%.

A major reason for the issues we are seeing is equipment and the shortage of containers. Shipping containers are being misaligned all around the world — many are tied up in the supply chain trying to get out of ports, and, container-making companies cut back last year on production, leaving vessels out of position. Additionally, there are rail delays and schedule reliability challenges.

While we are cleaning out the supply chain and freeing up some of the tied up existing equipment — inventory levels are rising, but it is not keeping pace with inventory sales. Domestically, we are seeing more product and volume through the supply chain, and we don’t see that changing this year.

The situation with supply chain is going to get worse before it gets better. Costs will continue to go up and delays will increase; supply chain isn’t keeping pace with retail sales and inventory to retail sales is down about 25–30% from historic numbers. But many suppliers have bounced back quickly depending on how fast they could get a handle on covid, and there is optimism in the industry moving forward.

Here are some best practices moving forward:

Tactical
· Visibility: Share information with providers and teams
· Consider using LCL freight: Can help move product more efficiently with the opportunity to get inventory on a consistent basis
· Booking Windows: Plan for 4–6 weeks to get cargo moving from initial booking
· Port pairs: Be creative about where you ship, more capacity on East Coast currently
· Communications & Process: Work with all departments to get everyone aligned to expectations internally, and then externally with providers

Strategic
· Provider depth: Reach out and talk to other providers; this is necessary as more volume than some can handle
· Cashflow: Extend credit lines; all are feeling more delays and higher costs currently
· Product mix: Consider velocity and profitability
· Pricing: Talk to clients; you are not alone in cost increases — have to pass on
· Business continuity: Build this up long term

Capacity challenges and higher prices are expected for the remainder of 2021 and may even get worse. Inventory will catch up most likely in Q1/Q2 of 2022. Some moderation in the market is expected in capacity and price — but except to begin approaching Price & Capacity stabilization in Q3/Q4 2022, although stabilization of price will be at new, higher levels.

The Logistics Manager Index (LMI) is a measure of supply chain metrics — has rapidly been growing over time and is the leading indicator of what is coming over time. LMI is escalating and has seen a three-month turn (second highest reading of all time) and is rapidly growing month over month.

eCommerce has really taken off; +40% last year, this year +13.6%, and by 2025, will account for 26% of retail sales by 2025 — leading to significant changes in the distribution network and decentralization and effects on the domestic transportation market, as carriers are really investing capital into their infrastructure (ex: FedEx).

Indicators:
· High volume moving through supply chain at a high velocity — expect it for rest of the year
· Inventory to retail sales ratio with respect to velocity — watch to measure CHANGE
· Carrier Alliances & Management of global capacity — allows for natural and artificial control of available space; stability in terms of what carriers want

Risks & Outliers
· IWLU contract summer 22: West Coast longshoreman union renegotiating contracts, so expect some short-lived port disruption
· India rebound may absorb capacity: May be able to grab more capacity and come back strong after Covid
· eCommerce inventory growth needs across all supply chain nodes: Greater inventory needs to meet demands
· Geo-Political: US/China
· Covid-19

In conclusion, Covid-19 has taught us the complexity of stretched supply chains and the need for shippers and exporters to plan strategically for when things may break down — a contingency and strategic plan needs to be in place to help mitigate the damage done to supply chain and customer relations.

Thank you to everyone who was able to join us for this webinar! Click here to view the slides and recording.

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