The State of the Supply Chain
By: David Rehg
Delayed deliveries, skyrocketing shipping costs and lack of inventory are plaguing the promo industry. These smart tips will help save money and get your shipments to arrive on time.
It’s undeniable that COVID-19 has caused significant disruption and damage to the global supply chain. So why, over a year since this virus started impacting our industry and lives, has the U.S. and global supply chain not been able to recover? The answer is it’s complicated. While many focus on macro-economic forces, the issues impacting the promotional products industry center on cost and service. Specifically, the increases in transportation rates and delays in service. Read on to understand why this is happening, and learn how to equip yourself with the tools to help mitigate some of these burdens on your business.
Small Package Shipping
Every year, small package carriers instigate General Rate Increases (GRI), which increases cost on every shipment within the network. This year, like the previous several, UPS and FedEx are showing nearly identical increases. Be sure to track cost increases, zones, weight group and surcharges to make the best decision for your business.
- Decrease shipping distances.
- Avoid shipping more air (larger boxes lead to greater dim weight and costlier shipping).
- Leverage your relationships with small package carrier sales reps to negotiate greater discounts.
- Insure your freight with third party providers who can often provide improved rates and savings opportunities through their scaling capabilities.
- Investigate hybrid services such as UPS SurePost and FedEx SmartPost, which provide tremendous cost savings, but often with slower transit times.
- If shipping consistent weight and dimensions, consider switching to prepaid shipping. This simple change can result in instant savings of up to 20%.
Less Than Truckload (LTL)
While many distributors tend to direct most of their spend towards small package, LTL remains a viable option for several as well. However, the LTL industry is not without its challenges, as they’re faced with the same struggles currently seen throughout the greater trucking industry and the domestic supply chain community as a whole.
LTL rates are estimated to increase 4.4% in 2021; however, if business isn’t profitable, even larger increases can be expected. Carriers are hesitant to add additional capacity as a method of increasing revenue, and instead are removing terminals from their network if they’re unprofitable.
“Carriers haven’t yet reached the ceiling on pricing, and we’ll see further increases in rates and surcharges. Low inventories across multiple industries will lead to additional competition for space on equipment, causing very long delivery times.”David Rehg, Facilisgroup
Service continues to be problematic, as Q4 didn’t rebound as the industry had hoped, with carriers continuing to be impacted by terminal-specific COVID-19 outbreaks. These outbreaks have led to sudden labor shortages, missed pickups and delayed deliveries, which when compounded by increased costs, have resulted in difficult circumstances for terminals to dig out of. The state of California (particularly Southern California) continues to be the most difficult area for carriers to service consistently. This has led to a Q4 increase in the California Surcharge as a way to offset the additional costs to service.
Additionally, many carriers have implemented temporary embargoes and restrictions of guaranteed services as a way to help balance capacity. Inventory levels remain low, so freight volume is expected to maintain and grow as overall inventory levels increase.
- Adjust routing to align with the carriers that work best within their network. Sometimes switching to regional carriers can increase on-time delivery while improving overall cost and service.
- Nurture relationships with carriers to better understand and address their pain points, in hopes of becoming a preferred shipper.
- For critical shipments, ship a day earlier or ship with guaranteed service to ensure timely delivery.
- Improve economic order quantities to avoid LTL and better utilize cross-shipper collaborations (called third-party logistics, or 3PLs).
International Ocean & Air
While you may not buy directly from ocean and air providers, the status of that industry impacts your cost and service. Help your customers understand the global supply chain challenges as you work toward setting realistic expectations for 2021.
Ocean carriers are expected to use their pricing power to seek annual container contract freight rate increases of up to 45% on Trans-Pacific Eastbound (TPEB) lanes for new 2021-22 contracts. Despite the increase, more importers are signing contracts earlier in order to guarantee space.
The second half of 2020 proved to be a difficult period for service in the industry, with on-time performance down to 32.1% from Asia to U.S. West Coast and 34.5% to the East Coast. Container availability for all sizes throughout China was at a record low by the end of 2020, and it affected all ports. Shippers are demanding service enhancements for 2021, including less rolled cargo, improved container availability at Asian load ports and much improved schedule reliability.
Air freight wasn’t without its challenges over the last several months. According to Ocean Insights, more than 33% of cartons shipped globally in December were “rolled over” at trans-shipment hubs – meaning they weren’t loaded onto the vessel they were meant to sail on. In fact, rollovers at top 20 global ports increased by an average of 37%, with some hubs trending significantly higher. Additionally, overall capacity tightened due to the Chinese New Year, and congestion and equipment shortages at major inland hubs such as Chicago and Minneapolis have also added to the struggles.
- Forecast accuracy is critical for carrier support, and allocations are extremely tight. Book early and don’t have a cargo no-show.
- Diversify your carrier base across alliances. However, rate climbs are likely to continue until demand volume eases up.
- Global container shortages have been a widespread issue, with 40-foot HC (high cube) containers in highest demand and shortest supply. Consider using alternative equipment sizes through November, at least, as carriers work to reposition empties. Unload and return empty containers as quickly as possible.
- Consider alternate ports which may have higher freight rates but are far less congested, such as Baltimore, Wilmington, Philadelphia and Mobile, among others.
- Partner with drayage companies that provide their own chassis.
- Southern California port terminals are experiencing a high number of missed truck appointments. Work with truck partners to cancel appointments that won’t be utilized so they can be used by others.
From a supply chain perspective, 2021 will be a challenging year. Carriers haven’t yet reached the ceiling on pricing, and we’ll see further increases in rates and surcharges. Low inventories across multiple industries will lead to additional competition for space on equipment, causing very long delivery times. Unfortunately, this is the environment we’ll continue to operate in until Q4. The hope is that once the equipment supply-and-demand issues start to improve, inventory levels will return to their pre-COVID state.