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The beginning of 2021 started with hope on the horizon. Supply chain leaders were looking forward to returning to pre-pandemic operations. The gradual rollout of the Covid 19 vaccine seems to seal the deal. However, disruption was only around the corner as winter storms pushed Texas temperatures and travel to a frozen standstill. Then, the whole year became marred by disruption after disruption, and shippers need to understand how the lessons learned from 2021 will be applicable in future strategies. Such understanding is vital, especially as major carriers continue to evaluate the ongoing capacity crisis and consider what additional surcharges may be necessary. Remember that all major carriers implemented peak surcharges at the onset of the pandemic, and while the official holiday peak season is over, there is a significant risk for 2022. Let's go back through some of the significant disruptions in the supply chain this past year and what they mean for the future.
The Suez Canal blockage by the Ever Given was among the first major disruptions to affect the global supply chain in 2021. As the megaship was transporting freight through the Suez Canal, winds in the area pushed the ship ajar. The ship blocked all transit throughout the Suez Canal for six days in March. Such an event brought all freight originating from India and Asia headed for Eastern U.S. ports to a standstill. The only alternative was to seek passage through the Panama Canal after a transpacific route. Unfortunately, the Suez Canal would seem to be the first in a series of disruptions that would undermine efficiency throughout the global supply chain throughout the year.
By the end of April, another disruption would gain major news outlets' attention—an attack on the colonial pipeline. A group of hackers gained entry into the networks of the colonial pipeline company on April 29. The attack stifled the supply of fuel across much of the country. Fuel rates rose in the direct aftermath of the attack. Fuel increases in any year typically affect the supply chain. After all, the majority of freight moves across an over-the-ground trucking network. However, fuel shortages in any mode translate into higher costs across other modes.
For example, a strain on trucking capacity contributed in part by higher fuel rates following the attack would have led to an increased demand for parcel and intermodal shipping. Such forms of transit, while they might not necessarily rely on fuel coming from that pipeline, see a strain and run on capacity. In tandem, rates move upward. Ultimately, the organization was able to restart the pipeline relatively quickly. It became evident that the company had indeed paid a ransom in exchange for resuming operations. Still, little is known about exactly whether the attackers were indeed apprehended. However, the year of tumultuous activity was still moving forward and bringing even more disruption.
Driver shortages were among the top defining factors in 2021. In mid-December , the American Trucking Associations released an estimate that the industry needed 80,000 more drivers to maintain current operations. Before the pandemic, estimates placed the driver shortage at 61,500. However, the same limited pool of drivers, strenuous demand, and relentless calls for faster transit have led to an exhaustion-laden industry, Transport Topics reported. Turnover is at all-time highs, and companies across the border are trying to raise piety in order to attract and retain drivers. However, such costs come at the expense of higher transportation for shippers. Like all aspects of the supply chain, shippers still expect fast, low-cost transit. Therefore, the pressure has been even greater, and more companies are actively investing in new technologies and capabilities to gain strategic advantages without breaking the bank in the end.
Play throughout the 2021 year of above-average shipping needs revolved around peak season. In recent years, major retailers, usually led by Amazon, gradually extended the length of their peak holiday deals. Expectations were such that Amazon would announce initial sales to begin in November. However, Amazon actually kicked off the official holiday shopping season in early October. The move pushed all retailers to advance their plans to offer more holiday sales immediately, and as with past years, those sales resulted in a run on capacity across all modes. Faced with the existing supply chain crisis, limited capacity, mounting ocean rates, and the uncertainty of what would happen with Covid-19, shippers went into a no-holds-barred approach to peak season.
By Christmas, rates had risen significantly across all modes, and major carriers, including USPS, DHL, FedEx, and UPS, had announced above-average GRIs for the upcoming year. Specifically, FedEx GRIs are radically higher, up to 7.9% higher depending on the zone. This trend is a massive departure from the years past where GRIs gradually rose, remaining around 4.9-5%.
Trying to stay afloat throughout the pandemic might seem like an easy task for carriers. After all, carriers have secured record-setting rates throughout the pandemic. Unfortunately, higher rates don't always amount to higher profitability. Even with better rates, there is still the risk of deadheading, access dwell time, and other disruptions.
Such risks became all too evident as Central Freight Lines shut down in mid-December. After 96 years and extensive reorganization over the past year, Central Freight Lines announced an immediate cessation of operations after competing already scheduled and picked-up deliveries. It was the most significant closure to strike the industry since Celadon closed its doors in 2019, explained FreightWaves.
With those closures occurring less than two weeks till Christmas, shippers across the country scrambled to find capacity. Those with existing plans for freight through Central Freight Lines for the week prior to Christmas were upstream without a paddle, and major 3PLs and brokerages, including GlobalTranz, immediately removed access to Central Freight Lines data and appointments from their systems.
The most compelling factor in that story is how the closure came at a time when many carriers were enjoying record-setting profits. As a result, it will be interesting to see if any other industries or entities experience similar effects going forward, considering the new disruption surrounding the omicron COVID-19 variant.
The horror stories of the ports of Long Beach and Los Angeles were among the top disruptions affecting the supply chain over the past year. According to Drewry World Container Index, rates remained relatively stable through May. However, rates quickly began to soar as the summer months wore on. They had an apex in September surpassing $10,000 per 40-foot container. Meanwhile, backlogs at the Port of Long Beach in the Port of Los Angeles became so severe that the number and density of ships awaiting berth became visible from space.
Following immense backlash and public criticism, the Biden administration began to meet with port authorities to resolve this crisis. The Port of Los Angeles went to around-the-clock operations, and the Port of Long Beach followed suit. However, around-the-clock operations don't necessarily mean that each terminal operator works around the clock. In other words, it again came up to individual terminal operators and beneficial cargo owners to figure out a way to get their freight out of port faster.
Meanwhile, the backlog off of the Western US coast forced many companies to begin thinking about alternate sites for import.
It wasn't long before the Port of Savannah became the new go-to port due to the backlog. To its credit, the Georgia Port Authority had already seen the writing on the wall. It has announced plans to begin significant improvements that would amount to more than 1 million TEU of capacity available over the following months and years. Still, freight continues to move into the US at record-setting rates despite record-setting ocean shipping costs. In some cases, rates have grown so severe that major retailers, including Walmart, Costco, and Target, had begun leasing their own containers and announcing plans to build more. The situation was dire, but even as things calmed down, other issues emerged.
The backlog off of the West Coast didn't seem as severe, but that was a misperception. The ships were still waiting for a berth, but they were further out at sea.
Another part of this is where port authorities began to consider the need to impose an additional dwell fee against the PCO's and carriers that were unable to unload ships fast enough. The new surcharge was planned at $100 per container per day. However, the ebbs and flows of containers across the ports led to the postponement of such fees nine times, and the most recent decision to delay implementation of the costs came on December 27, reported the Long Beach Post News.
The jury is still out on exactly what will happen as the industry moves forward. However, Hannah Testani, CEO of Intelligent Audit, made a bold prediction during a recent forum about how the industry will likely see more consolidation as the months move past. The need for an immensely diverse and agile supply chain is more important than ever. With all the disruptions of the past year in mind, the additional consolidation of multiple companies is practically inevitable. Such factors will allow larger organizations to effectively subsidize portions of their operations to create a profitable supply chain despite losses in certain markets. As a result, the pressure will be on for shippers and carriers alike to work together and figure out a way forward without breaking the bank. Part of that will inherently mean that shippers need to track their data more effectively. They must consider the comprehensive picture of the health of their organizations, define and create new actionable insights, make sense of data, and apply it wherever possible. That is the basic premise behind the use of Intelligent Audit. It is time to recognize that disruption is almost inevitable for the future, especially as the omicron Covid-19 variant grows more severe. Focus on driving data-driven insights to help navigate future disruptions more quickly for a lower impact on customer experience and supply chain variability. Connect with an expert at Intelligent Audit to get started today.
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