There is a lot of news floating around about the current and evolving issues in the global supply chain, but what exactly should shippers and carriers be most prepared for when looking toward the future?
In short, it will get a lot worse before it gets better, which is why you should start preparing your business now for what may be coming down the pipeline. We’ve highlighted the top three looming supply chain disruptions that we think shippers and carriers should be strategizing for, and what you can do to start protecting your business against them.
#1: Infrastructure bottlenecks to persist into 2023 and beyond
The need for shipping services has increased over time; however, providers have struggled to meet demand where it is. Container fleets are operating at limited capacity, and while new additions to fleets are being built, the earliest any new ships will be setting sail will be 2023. Yet ships aren’t the only problem. There is a shortage of nearly everything from shipping containers to warehouse capacity to port space to chassis. And with the labor shortage also continuing to persist, building these infrastructural components into the global supply chain will take significantly longer than most would like.
In short, this means that the cost of shipping will only continue to rise for the near future, at least until more resources are available to meet demand and provide some sense of stability.
#2: New carbon targets will put pressure on carriers
Understandably so, climate change is one of the more pressing issues in the agendas of current legislative bodies. With new environmental regulations and carbon targets rapidly being put into place, the shipping industry is reckoning with an inevitable and turbulent transition to more carbon-neutral fuel and emission solutions.
This is not a short-term task, especially as we mentioned previously that the current international shipping fleet is already being stretched to its limit. This lack of flexibility prohibits an opportunity to take ships out of commission to make fuel efficiency updates. Nonetheless, according to measures introduced by the International Maritime Organization, all existing ships with a gross tonnage of over 400 tons will be required to demonstrate an improvement in their energy efficiency by 11% by 2026.
While these updates are necessary to improve the carbon footprint of an industry ladled with waste, they will also cause significant disruptions in the supply chain as carriers begin to make the necessary updates to their fleet or face fiduciary backlash.
#3: Labor unions and battle over automation to heat up
In 2022, contract negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) will kick off. Many experts predict that automation implementation will be a main topic of heated contention.
In 2014 and extending into 2015, tense contract negotiations between these two parties caused massive work slowdowns and resulted in port gridlocks and huge losses for shippers (especially those of perishable goods). Now, with an entirely new set of labor challenges facing both the labor unions and the ports with which they work, there are fears that a battle over implementing automation into ports to make up for labor losses suffered during the pandemic could cause a similar scenario.
Three ways to protect your business from disruptions
There are a handful of tactics you can take to help minimize the impact of these changes over the next few years. While nothing can ensure you’ll be totally insulated from infrastructure disruptions, taking strategic proactive steps can help ensure that you have some resiliency in place that will keep freight from grinding to a halt.
Consider committed and multi-year contracts
We’re beginning to see a trend away from traditional spot contracts and towards contracts spanning 12 months and longer throughout the industry. The reason for this is that with fear of price volatility and service disruptions beginning to intensify, many shippers and carriers are looking to lock in trade now as well as protect their relationships with their partners for when times get rough. In addition, committed contracts help ensure consistent pricing, reliability in supply, and freedom to forecast more tactically while ensuring both ends of the supply chain are protected.
Diversify your supply chain
What this means for your business may vary, but what we’re seeing is that certain areas of the supply chain may be hit more drastically than others in the coming years. To protect against this, it could mean working with several different carriers, building infrastructure with different ports, or pursuing new trade lanes, or looking into industry relationships you haven’t explored before. In a perfect world, this means more broadly taking a segment of your supply chain and allocating it in a way that provides stability. Often, a healthy portfolio is a diverse portfolio.
Invest in research and technology
The supply chain is in the middle of a major upheaval at nearly every link of the chain, so relying on old technology and old research means you’ll likely be caught playing catch-up over the long-term. Rather than sticking with traditional strategies or pursuing just-in-time methodology during disruptions, stakeholders will find greater value in reconsidering how they track, amend, and propel their contracts and partnerships for profitability. Investing in market research so you can identify new trends faster or investing in new technologies to streamline your business could be the difference between floundering or coming out of these changes as a market leader.
While we all are facing uncertain times, there is a wealth of opportunity when you consider the demand of the market and its desire (or need) for change and innovation. Now is the best time to start evaluating each segment of your supply chain and finding ways to prepare, optimize, and hedge for what the future of international trade has in store.
