How to alleviate the global shipping bottleneck
Thanks to the pandemic, supply chain issues are impacting everyone. Amid a shortage of truck drivers, increased energy costs, backlogs at ports, and more, it’s helpful to understand what goes on behind the scenes before goods arrive on our doorstep.
“Supply chain” is a fancy term used to define the getting of products from where they are made to where they are consumed, says Jarrod Hunt, EVP of Industrial Services at Colliers.
To illustrate, Hunt gave an example of durum wheat grown in Montana for spaghetti noodles. That bushel of wheat may be transported thousands of miles, cleaned, milled into flour, and processed into noodles before traveling to multiple warehouses for various distribution companies. This all occurs before it ever ends up on the grocery store shelf. In some cases, that wheat may even be transported to a foreign country for processing to return to the US as the final product.
Hunt says that “supply chain” became a standard term due to the time-compressed disruption to that very sophisticated system of specialization, transportation, and trade—a disruption primarily caused by the uncertainty of the Covid pandemic.
“Things such as closing factories and warehouses due to worker health concerns, suspending orders on semiconductors for automobile and electronics plants, and shifting low-key manufacturing capabilities to other products such as PPE equipment caused prevalent and unforeseen choke points for various products,” Hunt says. The supply chain, he says, could be thought of as a finely-tuned system of businesses that supply other companies. Each is wholly dependent on the system working flawlessly, as it has for decades.
In another one of Hunt’s examples, hog farms in the Midwest were euthanizing herds and dumping them in pits early in the pandemic because no meat processing facilities were open to taking the animals. Then, just a few months later, pork hit historically high prices because average production never made it to the markets.
“There are hundreds of other examples—similar to the pork issue—that created wild ‘super-cycles’ in markets that no economist or financier could model out or react to with the normal predictive expectations,” Hunt says. We are still dealing with these issues today. From a global perspective, trying to catch up to what the standard supply and demand balances have created significant imbalances in our transportation capacity and average production efficiency, Hunt says.
Real time and The Middle Mile
The pandemic, resulting in wild swings in the markets and how we live our lives, has sped up the transition for either growth or the demise of specific industries or practices, Hunt says. Many companies evolved very quickly for the sake of survival. Current concerns will eventually normalize, and panics will end, but who will be left standing—and what changes will they be forced to make?
Hunt’s advice is to plan for change but keep moving forward every day. “It’s important to have contingency plans in place and quickly modify the direction you are heading as new information becomes available,” he says. Bear in mind that what was a socially responsible policy a few months ago may not serve any useful purpose today. That situation may change again by next week, but common sense needs to be at the forefront, Hunt says.
Over the last few years, logistic companies have concentrated on the last mile of distribution, which is usually the most expensive part. The additional focus is being placed on what happens before the last mile. Tackling the middle mile plays a vital role in optimizing deliveries across the supply chain and meeting consumers’ expectations.
The focus on the middle mile has now become the heart of multichannel strategies. This requires full and partial loads to be delivered to multiple fulfillment centers. They utilize technology for additional route planning and finding the most efficient path between drop-off points.
Big or small, organizations cannot get mired down in slow, methodical decision-making processes, Hunt says. The world has sped up dramatically with vast access to nearly instantaneous information. When we hear a success story, it’s typically because an organization has made decisions quickly and implemented the plan in real-time.
Optimization of the middle mile can be done by utilizing technology to effectively reduce inefficient distribution. Companies have now put in place AI and machine learning to estimate arrival times. Logistics can be seen from a single screen with new technologies. Real-time tracking and visibility allow companies to monitor what is happening on every delivery at a granular level and proactively address them.
What was once a time-tested strategy of “just in time” inventory management turned out to be a near-fatal weakness for some companies by April 2020, Hunt says. Planning for safety stock and having open and honest conversations with suppliers regularly will be the new way of doing business.
Increased costs also come with spot shortages for weird things like overhead doors or fasteners. “Who would have thought that overhead or garage doors and screws would ever be in a shortage situation?” Hunt says. He’s also heard from many clients about how their goods are sitting at a storage yard somewhere, but they can’t get the final leg of the delivery scheduled.
Closer to home
Hunt says that true and lasting wealth as a nation comes from producing cutting-edge goods, technology, and services that can’t be easily replicated. “Imagine what a wonderful situation we would be in today if all of our high-tech products and intellectual property were made here, domestically, and protected from counterfeits,” Hunt says. “Our foreign adversaries and those who would like to see the US placed in the back seat to innovation would not be in the competitive situation that they are in today.”
Hunt explains that it’s not an us vs. them philosophy all the time. Still, we need to protect our innovation and the American dream that allows people to take chances and end up with a significant reward if they are successful. “The past 24 months have illustrated how tied we are to the global players, and some are bad characters,” Hunt says. “We need to think through what the next 10, 20, 50 years look like for us.”
Willem Sundblad is the CEO and Co-Founder of Oden Technologies, a New York-based advanced analytics platform that identifies opportunities for manufacturers to optimize production. In a time of surging demand, supply chain crunch, and workforce shortages, improving efficiency is the best way to meet demand, Sundblad says.
The pandemic, Sundblad explains, highlighted how brittle our global supply chain is. Most companies moved raw supply overseas to achieve better margins. “The pandemic shut down entire regions, causing backlogs,” he says. “There was a vicious cycle as shipping traffic built up, causing raw material and manufacturing delays paired with higher consumer demand. Further compounding pandemic-related backups, the world experienced weather-related disasters like the unexpected freeze in Texas, and hurricanes, which caused further backlogs.”
Sundblad says we’re seeing American manufacturers shift parts of their supply chains closer to production. They’re using technology to improve their visibility in their output to increase agility and resilience. While no one could predict the pandemic, the rate of change is only growing. Companies who rapidly adapt and adopt continuous improvement will win, he says.
According to Sundblad, challenge creates an opportunity for growth. The supply chain crisis is forcing us to think differently—and it’s not as easy as hiring people or buying equipment to increase production. We have to become more efficient. In becoming more efficient, we empower and augment our workforce and develop the agility we need to stay competitive.
One of the best solutions that Utahns can control is the complete construction of the inland port. About Utah’s inland port, Sundblad says that adding new infrastructure to help drive supply chain efficiency in the US is good.
“Our country’s shipping infrastructure is at capacity, and the more we can relieve it with creative new solutions, the better,” Sundblad says. “With a larger shift toward re-shoring or near-shoring and increasing domestic consumption, it feels very strategic to continue to invest in domestic shipping infrastructure to unblock bottlenecks. Utah is a growing manufacturing hub and strategic location to help drive great efficiency and relief to the ports on the west coast.”
Hunt says having an inland port in our market will do nothing but great things for our business environment. The ability to leverage more efficiencies in the movement of goods in and out of the country and across the US will benefit us. The additional infrastructure that will come from the inland port over the next 20 years will change the course of the Wasatch Front and our position in the global economy forever, Hunt says.
The inland port will also benefit smaller rural communities within a 200 to 300-mile radius of Salt Lake City, allowing smaller agricultural-based communities better access to the global commodity trade markets crucial for rural America to thrive and be competitive. “Transportation infrastructure and global transportation facilities have made America the most vibrant and envied economy globally for the past century,” Sundblad says. “Continuing the focus on that and investment in those efficiencies will fuel that growth, innovation, and dominance on the global stage.”