COVID-19 is expected to remain present but manageable as more vaccines are distributed; however, many of the challenges spurred by the pandemic will persist in the long term. For this reason, the economic outlook remains fragile, haunted by fears of hyperinflation amidst economic stimuli, continued critical supply shortages and the ever-present risk of another adverse event. Even as consumers begin offloading the savings accumulated during the recession (consumer spending is set to surge by more than 5% in 2021), supply chain disruptions continue to constrain economic momentum.
The key problems wreaking havoc on supply chains for domestically-produced goods include:
- Soaring cargo volumes: Continuous demand growth for medical and telecommunications equipment manufactured in China is contributing to the current 3:1 ratio of US imports to exports. The near record-level cargo volumes are extending cargo processing times and straining the efficiency of cargo transfers.
- Plunging dockworker capacity: Dockworker infection rates are increasing nationwide while labor productivity plummets. At the Los Angeles and Long Beach ports in Southern California, which process around one-third of domestic container volumes, COVID-19 has caused more than 600 infections and 12 deaths since December 2020. Dockworker vaccine access is improving, but not quickly enough to offset sinking dockworker capacity.
- Container shortages: With surging cargo volumes and fewer dockworkers, the resulting backlog at domestic ports is facilitating a container shortage. Demand for containers en route to the United States from China has grown while the supply of containers has remained stagnant, sending the price per container – which typically lies between $2,000 and $5,000 – upwards of $10,000. Freight forwarders are now accusing ocean carriers of breaching contracts to charge premiums.
- Freighters are bypassing jammed ports: The precarious transport conditions are enabling carriers to solicit higher rates, meaning forwarders are paying more to move goods. However, the urgency with which forwarders move goods varies. Some forwarders are outright skipping scheduled terminal deliveries at ports with extensive backlogs and up to weeks-long processing times, such as those along the West Coast, and rolling shipments to a later date.
- Other problems are compounding: A flurry of pandemic-related challenges is further straining port performance, including a chassis shortage, rising warehousing rates and a scarcity of truck drivers.
Ultimately, the cargo bottlenecks and related supply chain disruptions are causing global transport to become more expensive while service quality worsens. Fortunately, businesses have some recourse; while global supply chains struggle to return to peak efficiency post-pandemic, companies can focus on strengthening regional and local supply chains and exploring strategies to mitigate disruptions to global trade.
Strategies to strengthen regional and local operations post-pandemic include:
- Continuing scenario planning: Moving forward, businesses should continue scenario planning to account for demand and supply risks, including the risk that individual suppliers pose to the company’s operations. In the same vein, companies can transition from single-sourcing to multi-sourcing initiatives, which encourage strategic sourcing from multiple suppliers to hedge against significant disruptions that can arise when sourcing from a single supplier.
- Maintaining strategic stockpiles: Businesses conventionally shy away from stockpiling inventory in order to save on storage costs. In light of the persistent global supply chain disruptions, however, storing large amounts of inventory in strategic locations to improve the speed and reliability of access can prove valuable to operations and worth the additional cost.
- Digitizing business models: To reduce exposure to supply chain disruptions, businesses should consider implementing advanced technologies (e.g., smart sensors, artificial intelligence, smart inventory management, predictive maintenance) to create smart supply chains that predict and analyze bottlenecks before they occur. Additionally, businesses can embrace e-commerce and expand their digital footprint to hedge against risk from physical operations.
- Appealing to regional and local tastes: Whereas the e-commerce landscape presents businesses with new opportunities to satisfy customer needs, shrinking global supply chains provide businesses with additional incentives to cater to regional and local preferences. Building out inventories while transitioning to more flexible business models is a risk itself; companies can offset some of the associated costs by differentiating products and adapting pricing models to better reflect regional preferences and potentially reach higher price points.
- Prioritizing risk management: The apparent need to invest in risk management will decline as the pandemic fades, but reverting back to a sole focus on growth and efficiency will expose operations to the same supply chain risk that was detrimental for businesses during the pandemic. Businesses should thus continue to explore the strategies mentioned above, as well as others, to mitigate direct and indirect risk exposure and offset the impact of supply chain disruptions on operations.
Pandemic-related supply chain disruptions are all but forcing businesses to pivot away from conventional supply chain strategies; those that embrace modern strategies sooner than later will minimize risk and ensure they are well-prepared to weather the next storm.
By: Ayanna Leaphart & Riley Mallon
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