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Foreign Exchange Articles For Businesses
Businesses Reshape Supply Chains in Face of Volatile Freight Market
By Megan Doyle
Supply chain and logistics companies are facing a crunch in transportation capacity due to strong consumer spending, new federal regulations, and changes in trade policies. With freight volumes at a high and transportation capacity at a low as Fall 2018 approaches, businesses are facing higher costs and shipping delays.1,2
In light of these challenges, businesses – especially small and medium enterprises (SMEs) – are beginning to reconfigure global supply chain management strategies. Here are some of the hurdles that logistics companies and import-export businesses have been facing, and what they're doing to address them.
Supply Chain and Logistics Companies Hit with Challenges
Economic growth and strong consumer spending are usually considered a good thing. But, lately, as more and more goods are being pushed through supply chain logistics networks, freight companies and warehousing operations are straining under the load.3 Many ports are reporting record cargo volumes, and demand is unlikely to slow down any time soon, according to experts.4 For example, e-commerce sales grew 15.5 percent in 2017 alone, increasing parcel delivery costs for businesses by 7 percent from 2016; and they are predicted to keep rising.5,6
One of the challenges is that the U.S. is experiencing a nationwide shortage of both trucks and truck drivers.7,8 Many truck fleets are already at capacity and must turn down cargo loads, delaying shipments.9 Furthermore, a new federal safety rule that requires truck drivers to meticulously track hours behind the wheel took effect in December 2017. Rigid time limits are being used to provide greater safety for drivers, but this means that routes that took one day in the past can take twice as long, reducing truck availability even more.10
Recent changes in U.S. trade policies and those of its trading partners could worsen supply chain companies' logistical bottlenecks. For instance, it's possible that as much as 15 percent of the goods moving through the port of Los Angeles alone could be subject to higher tariffs, says the port's executive director, Gene Seroka.11 It may be worth nothing that, although import-export businesses are still unsure of the potential effects of tariffs, businesses tend to build up their inventories "in the face of uncertainty," says Lora Cecere, analyst at research firm Supply Chain Insights.12 To be safe rather than sorry, therefore, import-export businesses are increasing orders for products and parts from overseas in order to cut down on the potential financial impact of changing trade policies, further contributing to the bottlenecks logistics companies are experiencing.13
More cargo than the infrastructure can handle means that the cost of supply chain logistics solutions has risen dramatically, affecting airfreight, rail transportation, big-rig trucks, parcel carriers, and even storage facilities.14 According to logistics company NFI, the average rate per mile has increased between 20 and 30 percent in 2018 alone.15 U.S. trucking and rail-freight spending was 15.9 percent higher in June 2018 than the same time in 2017, and total spending on shipping and logistics was 6.2 percent higher in 2017 than the previous year – almost $250 billion more than in 2008.16,17
High demand and limited freight availability are making it more difficult and more expensive for import-export businesses to book transportation. Some businesses have reported that high freight costs are cutting into profits, while others have no choice but to postpone all but the most important deliveries – or pay a premium to prevent delays.18,19
Reshaping Logistics and Supply Chain Management Systems
This crunch in freight capacity means import-export businesses are putting in the "time, energy, and effort" to explore new logistics and supply chain management solutions that will mitigate high prices and shipping delays.20 Experts suggest that larger companies might have an advantage in the current market since they have contract rates for most of their freight arrangements and, therefore, don't have to rely as much on volatile spot market prices. Not good news for SMEs, of course, who often don't have the security of set rates and must continually face radical price shifts.21
Thus, import-export SMEs, in particular, are "taking more control over their transportation and warehouse operations, and looking to offset logistics costs with savings from other parts of the supply chain" by increasing efficiency in as many areas as possible. This can include tactics such as minimizing miles driven while maximizing load sizes to reduce the frequency of shipments.22
Similarly, many SMEs are finding it necessary to shop around for the cheapest rates and use multiple logistics companies, to help ensure customer demands will be met on time.23 Other import-export businesses are building transportation fleets and sending their "own trucks out to make pickups whenever possible" to avoid paying rising third-party freight fees.24
Despite freight contracts, analysts suggest some larger businesses are also beginning to feel the effects of the transportation crunch; some freight carriers have been unable to stick to contractual obligations in light of surging volumes.25 In turn, larger enterprises with clout are going so far as to narrow delivery window times and impose fines for inaccurate shipments in hopes of regaining control over their supply chains.26
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Between strong consumer spending and a nationwide truck and driver shortage, volatility is on the rise in supply chain management and logistics. With more goods being shipped than freight companies can handle, U.S.-based import-export businesses are looking to new logistics and supply chain management solutions to enhance efficiency and reduce bottlenecks and costs – while still trying to keep the customer satisfied.
Megan Doyle
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.
1. "Forwarding Quarterly Report - 2017 Results," Logistics Trends and Insights; http://logisticstrendsandinsights.com/3626-2/
2. "Companies Spent a Record $1.5 Trillion on Shipping Costs in 2017," The Wall Street Journal; https://www.wsj.com/articles/companies-are-spending-more-on-shipping-and-thats-not-changing-soon-1529413500
3. "As Shipping Costs Soar, Supply Chains Get a Makeover," The Wall Street Journal; https://www.wsj.com/articles/as-shipping-costs-soar-supply-chains-get-a-makeover-1529244003
6. "20 Ecommerce Predictions for 2018: What You Need to Know," CreativeMinds; https://www.cminds.com/20-ecommerce-predictions-2018-need-know/
7. "A Shortage of Trucks is Forcing Companies to Cut Shipments or Pay Up," The Wall Street Journal; https://www.wsj.com/articles/a-shortage-of-trucks-is-forcing-companies-to-cut-shipments-or-pay-up-1516789800?mod=article_inline
8. "America has a massive truck driver shortage. Here's why few want an $80,000 job," The Washington Post; https://www.washingtonpost.com/news/wonk/wp/2018/05/28/america-has-a-massive-truck-driver-shortage-heres-why-few-want-an-80000-job/
10. "A Shortage of Trucks Is Forcing Companies to Cut Shipments or Pay Up," The Wall Street Journal; https://www.wsj.com/articles/a-shortage-of-trucks-is-forcing-companies-to-cut-shipments-or-pay-up-1516789800?mod=article_inline
11. "Tariff hikes cast U.S. ports into murky waters," American Shipper; https://www.americanshipper.com/main/full/tariff-hikes-cast-us-ports-into-murky-waters-71866.aspx
12. "Shipments to U.S. Ports Soar on Rising Retail Demand, Trade Worries," The Wall Street Journal; https://www.wsj.com/articles/shipments-to-u-s-ports-soar-on-rising-retail-demand-trade-worries-1529528310
13. Ibid. 14. "Companies Spent a Record $1.5 Trillion on Shipping Costs in 2017," The Wall Street Journal; https://www.wsj.com/articles/companies-are-spending-more-on-shipping-and-thats-not-changing-soon-1529413500
16. Cass Freight Index Report June 2018, Cass Information Systems; https://www.cassinfo.com/~/media/files/transportation_files/freight%20index/2018/cass%20freight%20index%20report%20-%20june%202018.ashx?la=en
17. "Companies Spent a Record $1.5 Trillion on Shipping Costs in 2017," The Wall Street Journal; https://www.wsj.com/articles/companies-are-spending-more-on-shipping-and-thats-not-changing-soon-1529413500
18. "As Shipping Costs Soar, Supply Chains Get a Makeover," The Wall Street Journal; https://www.wsj.com/articles/as-shipping-costs-soar-supply-chains-get-a-makeover-1529244003
26. "Wal-Mart Tightens Delivery Windows for Suppliers," The Wall Street Journal; https://www.wsj.com/articles/wal-mart-tightens-delivery-windows-for-suppliers-1517266620?mod=article_inline
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