Avoid Supply Chain Dominos by Navigating the Disruption Du Jour

It can feel, at times, like a game of dominos. When there’s a global supply chain disruption, like those we’ve been seeing in recent months on the Red Sea and the Panama Canal, e-commerce companies and, ultimately, consumers feel the downstream ripples.

For those working on the inside, it’s nothing new. There have been plenty of similar events in recent years. During the pandemic, which had its own challenges for supply chains, events like the running aground of the large container ship “Ever Given” in the Suez Canal provides one of the best examples of how one event can add “insult to injury.”

Another occurred not long after Ever Given — severe labor shortages at vital ports like the one in Long Beach started to inject another complication.

The period during the pandemic truly was a perfect storm for supply chains. It gave a real-world case study on how seemingly separate and, on their own, manageable snags can combine to upend supply chains from the plant all the way to the customer’s door and how difficult they can be to unwind once started.

Today the pandemic’s worst effects have passed and now, as the world becomes an increasingly complicated place to do business, we’re seeing yet again how an “isolated” problem in one corner of the world can have an effect on billions.

'Floating' Economy at Risk in Turbulent World

A staggering 90 percent of the world’s trade is transported by ship, so the effects can be quite dramatic whenever a “choke point” becomes congested or there’s some other interruption on the “high seas.” For consumers, sometimes it’s noticeable in the lack of inventory in a particular category. Almost always, there’s an added cost from the delay, which is absorbed by the merchant and often passed to the customer.

As global trade grows, more ships burn more fuel and pay their crews more to be out at sea longer. This alone brings increased costs, but add in disruptions such as we’re seeing in the Red Sea region and it means those increased costs are unavoidable.

On top of this is growing uncertainty about the future of trade on the “high seas,” a notion that has propelled maritime traders for centuries. Today, as seen in the Red Sea area, forcing carriers away from the Suez Canal and instead around Africa’s Cape of Good Hope, terrorists are challenging free trade in their backyard and affecting consumers downstream.

Higher Costs Trickling Down

Last year saw relatively inexpensive ocean freight. Believing that pandemic volumes would carry into 2023, carriers bought bigger ships. As it turns out, this actually had the opposite effect. It resulted in too much supply, coupled with lower demand; the resulting cost of a 40-foot container from Shanghai to Long Beach stayed below $2,000.

As these latest snags throw yet more wrenches into the mix, container prices in the first month of 2024 doubled and in some cases even tripled. The world container index most recently had the price of a 40-foot container pushing $4,000.

The primary trade route between East Asia and North America has been especially challenged recently. As China prepared to shut down for the Lunar New Year, there was a rush to get product loaded and shipped. Then there’s the Red Sea. Some carrier traffic is being diverted through the Suez to avoid the Panama Canal, where drought has caused lower water levels. Others are going around the tip of Africa to avoid the threat of attacks and piracy. Suddenly a lot of vessels are taking more time to complete their cycles.

Be Supply Chain Aware

As the world’s carriers work around disruptions, it’s important that any company working within the supply chain stays on top of it every minute of every day.

Visibility and Communication

Being in the know, understanding the situation and knowing how it may impact operations and product availability is key. Follow disruptions and understand their residual impact. If you can’t figure it out, reach out to your suppliers and ask questions. The more quickly action is taken the more effectively disruptions can be worked around.

Reimagine Warehouse Operations

Consider moving away from major distribution sites in metropolitan cities to several large hubs, served by strategically located distribution centers. Having several major hubs within a two- to three-day delivery time of 95 percent of American households is the model that's cost effective and service-oriented. This allows retailers to make up for lost time once delayed ships make it to port and product finally starts closing in on its final destination.

Find a Strong Partner

A third-party logistics (3PL) provider can be a strong solution for those with the resources. A true 3PL partner offers turnkey solutions and advice around warehousing, inventory efficiencies, SKU depth and velocity, purchase planning, and other vital operations. Hire a 3PL with its finger on the pulse of the entire supply chain.

Technology is Your Friend

Technology is evolving all the time and adapting to the latest warehouse management systems (WMS) technology is paramount. The upgrades can be daunting and pricey, but that shouldn’t deter any company working within the supply chain. A worthwhile WMS must help you grow your business and keep issues within your supply chain visible at all times.

If anything has been learned since 2020, it’s just how intricate our supply chains are and how one seemingly “unconcerning” issue in a far away corner of the world can have a major impact down the chain on the other side of the globe, especially as additional disruptions arise.

No matter the supply chain sector we work in, being experts on the supply chain at any moment in time is critical in overcoming the hurdles that are thrown our way each and every day.

Tom Behnke is an advisor for Boxzooka, a cloud-based warehouse management software platform and fulfillment distribution center, as well as vice president of sales and marketing.