IAMC Members: “Leave (Most) Supply Chain Issues to the Private Sector”
By John Salustri
If honors were given for dubious economic merit, the June inflation rate might take the gold. According to Trading Economics, inflation hit 9.1 percent midway through 2022, not only above expectations of 8.8 percent, but also the highest since November of 1981.
https://tradingeconomics.com/united-states/inflation-cpi
Meanwhile, President Joseph Biden in a July statement vowed to bring down the price of gas, urge Congress to pass consumer cost-reduction legislation and give full rein by the Federal Reserve “to combat inflation.” (In fact, it did raise the federal funds rate another 75 basis points in July.)
https://www.whitehouse.gov/briefing-room/statements-releases/2022/07/13/president-biden-statement-on-cpi-inflation-in-june/
Still, goods have to move from container ships to store shelves. And while we await more action from inside the Beltway, the private sector seems to be putting its trust in free enterprise.
Resourceful Responses
“The supply chain in its multiple segments can work more closely together to increase transparency and maximize the utility of constrained resources,” says Mike Engstrom, general director of marketing, Consumer Products, for BNSF. “The biggest challenge is visibility over the life cycle of a shipment.”
“That’s the beautiful thing about free enterprise,” says Keith Winters in Bloomington, IL, senior manager of Business Development for Dubai Ports World in Bloomington, IL. “Things settle out through our own innovation. In fact, we’re starting to see a bit of a turn.” (More on that shortly.)
A Chain Reaction
What got us into this delivery fix? Certainly, COVID-19 market changes lead the list. “The pandemic would be the overarching contributor, which affected the ebbs and flows of freight volumes to extremes,” says the Fort Worth, TX-based Engstrom. “Stemming from that, a shift in consumer buying habits from brick-and-mortar stores to online retail and workforce availability are also major contributors.”
But wait. There’s more. Werner Enterprises’ Corporate Real Estate director Bill Luttrell calls what followed “a perfect storm.” Even as consumer demand grew last year, “we saw inflation raising its head. Now it’s taken on a life of its own.” He adds to the mix global geopolitical events, such as the war in Ukraine, and an unprecedented labor shortage.
And then there are the striking West Coast dock workers. While vowing to keep goods moving during negotiations, the issue only underscores the ultimate fragility of links in the chain. In the midst of all of this, “The government is now faced with trying to create a soft landing or we go into recession,” he says.
Now and through the mid-term, Luttrell believes the major problem is one of capacity. He monitors the Fed’s Manufacturing Capacity Utilization Rate data. The rule of thumb, he explains, is that, at 80 percent, the industry typically starts investing in new plants and equipment, an option hobbled lately by the growing scarcity of industrial real estate and the resulting increase in pricing.
What’s more, he says, “the average utilization rate across all industries is currently at 80 percent, and oil and gas refining capacities are in the upper 90s. Several companies are scrambling for new space just to store product” while the supply chain works out its challenges.
For Winters, the major issue arises at an earlier stage in the process. “To me, the biggest issue is raw materials,” he says, pointing out, for instance, that 85 percent of the lithium for batteries is sourced from only three countries.
Which, of course, has implications for nearshoring and reshoring. “The real paradigm shift is that globalization has peaked,” says Luttrell, who is based in Omaha. “We’re quickly moving toward more regionalization.” Fueled in large part by the current supply chain needs, the move to regionalization improves overall delivery times, reduces logistics costs and has a more positive impact on the environment and sustainability.
Meanwhile, supply shortages continue to hamper industries like car manufacturing and repair. (Carmakers built 1.7 million fewer cars last year than in 2019, says Consumer Reports.)
Trucking firms face the same problem. Class-8 truck manufacturers are producing significantly fewer new trucks due their reliance on chips. The driver shortage is also a big challenge, and recruitment and retention is becoming more dependent on the maintenance and safety of equipment, driver wages and the flexibility of schedules
https://www.consumerreports.org/buying-a-car/global-chip-shortage-makes-it-tough-to-buy-certain-cars-a8160576456/#:~:text=Despite%20high%20demand%20from%20consumers,is%20used%20to%20make%20semiconductors.
Leading With Customer Service
While we wait for the Fed to get its fiscal house in order, the private sector continues to look for workarounds to the supply chain issue. And that begins with client focus.
“The most important pivot we’ve taken is to offer more services,” says Winters. “As a port operator, the question becomes, what unique solutions can we provide?”
He explains that, in the last three years, a DP World logistics park in the Dominican Republic doubled its space, and it’s still turning away new applicants. “We can’t build fast enough right now,” he says. “So, we acquired a whole lot of extra land there because we were afforded the opportunity.”
Engstrom agrees on the need to ramp up customer service. For one, “We’re working to reduce bottlenecks by collaborating with our customers and shipping partners to continually improve our technology investments, which enable safe and transparent communication between entities.”
Which means all private-sector hands on deck. As Luttrell explains, everybody involved has to pitch in to make the chain more “resilient, whether that’s implementing such technologies as warehouse management systems or improving the real-time visibility of products in the chain.”
The folks of BNSF are on board. Engstrom cites its intermodal facilities, where a RailPASS app and automated gate systems, “reduce drivers’ gate times to as little as 30 seconds, and we’re piloting gateless technology for further fluidity.
“Plus, for back-office exchanges,” he continues, “we employ application programming interface (API) technology to help shippers track their freight in real time.” Not surprisingly, ongoing investments in tech, “will help bridge shipment visibility gaps and increase efficiency across multiple segments of a supply chain.”
Put Service First; Revenues Follow
Recognizing that good customer service is good business, Winters, like our other speakers, sees fixing their immediate needs as a priority. “It’s not so much the revenue right now as much as it is about providing answers for our customers.”
Toward that end, what he calls one of the most important customer-service improvements the firm has made has been creating more efficient berthing schedules. “We’re orchestrating them differently so ships can get in and get out more efficiently,” he says.
He adds that a recent 40 percent drop in ocean freight rates might be the early signs of a turnaround. And it’s also evidence, he believes, “of free enterprise at work.”
Clearly, we’re not out of the supply chain weeds quite yet, and as our speakers attest, improvements won’t appear overnight. But while the Fed takes its small steps, the private sector is hard at work on customer-focused solutions.
“Longer term, I’m optimistic,” says Luttrell. “I’m optimistic because, when things go south, people become more resilient and creative in solving their problems.”