Logistic Leaders Are Still Grappling With Rising Costs and Operational Challenges
Reports of an easing supply chain crisis may be greatly exaggerated. While the media has highlighted the many ways that pandemic-spurred supply chain problems are lifting, those on the front lines are still uneasy as they face rising costs, inflation and economic concerns, continued unpredictability, and employee shortages.
The Federal Reserve Bank of New York noted just a few months ago that global supply chains have "returned to normal." The bank’s Global Supply Chain index has fallen from record highs hit between 2020 and 2022 as COVID-19 caused lockdowns and factory shutdowns, trade wars ensued, and Russia invaded Ukraine — all of which impacted procurement networks and created shortages of virtually everything.
Yet, many logistics professionals report that their current day-to-day experiences and other market factors continue to impact their ability to get goods and services to their final destinations.
Concerns Still Top of Mind
The Supply Chain Perspective report found that nearly three-quarters of those working within the supply chain still experience logistics challenges and expect them to continue through the end of the year. Some of the biggest issues include:
- Fuel costs: Fifty-nine percent cited fuel costs as their primary obstacle. In June 2022, gas hit its peak at $5 per gallon. While the national average has dropped about 30 percent in the past year to $3.57 per gallon, according to AAA, this is still significantly higher than during the pandemic. In 2020, gas prices dropped to historic 10-year lows of $1.82 per gallon, with some areas even seeing prices lower than $1.
- Inflation: Forty-six percent said that inflation was impacting supply chain operations. Even though the Federal Reserve’s rate-hiking campaign cut inflation by more than half over the past year, in July prices were still 3.2 percent higher on an annual basis compared to a year ago. The Supply Chain Perspective showed that 60 percent of logistics professionals expected their operating costs to be as much as 20 percent higher this year, with 40 percent expecting to increase fees to keep up with inflation. About 10 percent said they planned to limit warehouse space as a result of rising interest rates.
- Delays outside of their control: Forty-one percent of logistics professionals ranked delays outside of their control as a top concern. There are many issues across the supply chain that can cause holdups, such as natural disasters, including severe weather, hurricanes, floods and earthquakes; strikes and labor disputes; supplier and vendor delays further down the production process; and customs clearance.
- Unpredictability: Another 38 percent indicated that continued volatility is causing issues. This includes fluctuations in consumer demand, especially changes in spending habits during and after the pandemic and current mixed signals amid economic uncertainty; changes in government regulations, trade policies and compliance requirements; and quality or performance issues that lead to recalls, returns and delays in fulfilling orders. About one-third of the logistics professionals surveyed said they anticipated inventory shortages, while 25 percent worried about oversupply.
Looking on the Bright Side
Despite their reported concerns and uncertainty, two in three logistics professionals said they were optimistic about the future and were taking essential steps to ensure their businesses can rise above the challenges.
More than half of supply chain leaders said their organizations were planning to increase the use of technology or adopt new solutions (57 percent) and hire more drivers or increase delivery capacity (55 percent). And about one-quarter indicated that they were going to invest in sustainability initiatives, which would help reduce both their carbon footprint and overall costs at a time when fuel prices remain high.
The technology piece is the key to helping minimize the impact of the challenges supply chain professionals face. For example, transportation and delivery management systems can help with route optimization and offer real-time visibility into shipments and last-mile deliveries. There are also warehouse management solutions for managing inventory and improving order fulfillment processes. And the application of artificial intelligence and machine learning can help businesses identify patterns and provide insights that help with demand forecasting, support automated decision making, and enable dynamic routing that makes drivers more efficient and saves on fuel costs.
Shailu Satish is the co-founder and COO of DispatchTrack, the global leader in last mile delivery solutions.