Shifting Landscape Alters US Distribution Networks and StrategiesOctober 03, 2022 News
There have been plenty of supply chain disruptions over the last two years. Companies have had to find ways to navigate around and through these disruptions to maintain continuity and successfully meet demand and customer needs. This has required distribution managers to think creatively and try alternate paths that may not have been considered best practices in years past. Some of these disruptive changes include unstable and drastically changing freight costs within a short period of time, labor union negotiations, general labor shortages, lack of warehouse space causing an increase in distribution expenses, and lack of technology to diagnose and react quickly to changes or plan efficiently.
All modes of US domestic freight have dropped significantly in cost over the last few months, now comparable to pre-pandemic numbers. Demand for goods is fairly strong and unemployment numbers are low. The general slowing of the economy, combined with the demand crunch of early 2022, contributed to decreased rated and increased capacity. We had an early peak season in 2022 and are not expected to see another peak this year, as typically anticipated. Rates are expected to remain through Q1 2023. This economic slowdown can be compared to the abnormally strong demand of goods during the pandemic but is still considered healthy historically. Experts think that any economic slowdown will be short-lived, and not deep, and there is still significant demand for goods to be fulfilled as supply chains recover.
US domestic warehouse space is hard to come by and rates are increasing. This has been caused by the early peak season experienced in the first half of 2022. Companies, while facing extreme import transit delays, were ordering early to ensure product by the holiday season. In addition, many imports were so late that products missed their conventional buying season. Over purchasing may also have been a factor. This inventory will eventually flush out as the next round of buying seasons pass and import transit times become more predictable.
Supply chain and distribution managers have had to try new paths to move goods as traditional models were not meeting their needs.
– Extreme delays due to rail congestion shifted goods to over the road truck market, causing its own lack of capacity earlier this year. Now that rates are lower, the shift may persist until the rail system and labor market improves.
– Warehouses near the coastal ports filled up first as imports were arriving. This caused a shift to expanding distribution locations inland at a higher rate.
– Labor contracts for rail workers and west coast port workers have yet to be finalized. This has caused a pivot to over the road trucking and higher imports on the east coast.
– Companies are finding that visibility and reliable data is key to planning and making quick decisions. A lack of data integrity is causing many companies to invest in more intuitive, analytical platforms to manage their business.
Over the last two years, we have found that the ‘supply chain’ really is an ecosystem or web of activities. It is not necessarily a linear link of functions each depending on previous sets of actions. It is, however, a system where any disruption could have unintended consequences that may not be directly related. In order to manage this type of complex web of activities, managers need to be disrupters and experiment with alternate, innovative options to ensure businesses are flexible and can pivot quickly.
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