Supply Chain Capacity in Ocean and Air Subject to Uncertainty Thru Recovery

supply chain capacity

Having intimate knowledge of available supply chain capacity in every shipping mode continues to be paramount for companies to meet consumer demand as economies recover after recessions felt during the global COVID-19 pandemic. Across the board, capacity to haul shipments is tight and increasing costs result in many companies spending more on transportation than initially budgeted. However, power is knowledge, and shippers who rely on data and transportation analytics to serve as a decision-making guide can make smarter transportation procurement decisions. Data and analytics provide a story for a supply chain manager to tell the rest of the company about the availability of capacity and the resulting impact on pricing, particularly in ocean and airfreight moves. And given the unprecedented activity levels of U.S. ocean shipment imports, rising 101.9% above last year’s rates, says FreightWaves, now is the time to start thinking about building better transportation spend management strategy. Empowered by data and analytics, managers reduce uncertainty and confidently take the steps necessary to keep total transportation costs under control.

Increased Surcharges Will Impact Overall Costs

While the industry did expect a slight lowering of shipping surcharges through the last quarter of 2020, their impacts continue. Delivery area surcharges are here to stay for major carriers, including FedEx and UPS. Increased surcharges will increase overall shipping costs. While it may be easy to recapture some of the expense through improved optimization of retail fulfillment, more opportunities for improvement will reside in optimizing existing transportation networks. That includes promoting increased accuracy and accountability within freight bill and payment processes to improve shipping budget management by uncovering charges placed on the invoice in error.

Port Congestion Will Create Challenges in Managing Drayage and Demurrage

It’s challenging to visualize the overall flow of ocean freight. Yes, the effects of the Suez Canal catastrophe will continue to have an impact on the industry. But there’s a much more significant factor at play. According to the Loadstar, “no one [shipper] envisaged what was about to come. We saw spikes of 50%-100% of cargo volume entering the US, especially on the west coast, which had put a massive strain on a system designed to handle an occasional surge of cargo, but not a sustained surge over more than 30 weeks.” As such, drayage and demurrage costs will increase in the coming months. For shippers to avoid overspending their transportation budget, they can bring their data into a single repository to track activity and analyze that activity to uncover actionable insights and improve decision-making. The more a company knows about their historical shipping activity and can compare those costs to other shipping mode activity, the more they can make decisions that lower their overall transportation spending. Spend management, powered by insights gleaned from analytics, provides a culture in optimizing the flow of goods to meet both service levels and expected costs.

Increased Strain on Ocean Will Lead to Heightened Stress in Airfreight

The increased strain due to low capacity, increases in consumer demand, and rising costs in the ocean freight mode can seem somewhat isolated. Unfortunately, increased pressure on ocean freight will inevitably lead to heightened stress in other forms of global transport, particularly air. At present, ocean freight requires a 2-week prebooking advance to get a spot on the ship. If not, the companies’ spot gets bumped, unless they pay a premium surcharge to guarantee placement on a ship and secure the ocean freight move. According to the Journal of Commerce, “Vessel space and equipment are in such high demand at Asian ports that importers are paying as much as 50 percent higher than the already record spot-market rates just to get their shipments to the US in the next few weeks.” Premium surcharges vary from carrier to carrier, but, as further reported in the Journal Of Commerce article, “a rate sheet provided by another NVO that covers 10 trans-Pacific lines lists premium rates that “protect space” ranging from $1,000 to $3,000 per FEU on top of the base freight rate. Seven of those carriers listed premium service surcharges of $2,000 or higher.” If the company is not able to pay the cost of the move plus a premium surcharge to guarantee space, the company will have to move that volume somewhere else, either through parcel or airfreight. As such, with increased demand as companies switch shipping modes, both over the road costs and airfreight rates will increase in the coming months, increasing overall complexity, opening the door for increased risk for error within freight invoices. This is where having a trusted partner, like Intelligent Audit, adds value through account management along with a suite of freight audit and recovery services, in addition to an analytics platform. A representative can walk you through the data to see which moves could lower wait times and costs, reduce the time it takes to deliver the product, and give the retailer back time to focus on where they need to optimize the supply chain.

Deploying the Tech Stack is Critical to Overcoming Supply Chain Capacity Constraints

Supply chain professionals who deploy a technology stack composed of execution tools and analytics platforms can overcome capacity restraints. Platforms that analyze and get rich insights around a company’s transportation network provide the information managers need for proactive planning around lack of capacity. The analytics may present a need to pivot to other modes while keeping an eye on how changes impact overall transportation spending. The infusion of technology, especially analytics, then spawns a company culture focused on continuous improvement. Further, the modern supply chain tech stack contains a significant repository of data that, when analyzed, provides an opportunity to take action to optimize network relationships, maximize supply chain capacity, prioritize shipments and enable better carrier contract optimization.

International Travel Will Continue to Increase, Promoting Air and Ocean Growth, As Vaccine Rollouts Grow

Another factor affecting the overall state of recovery and uncertainty is the continued vaccine rollout. As the rollout grows in size and volume, international travel will increase. Combined with uncertainty within the major air carriers, including commercial passenger airlines, the increased international travel will promote growth in air and ocean rates. As such, invoice auditing and accountability will increase in value. And shippers will look to maximize efficiency and accounting wherever possible.

Start Tracking the Right Data With the Right Analytics Partner

The best-laid plans for supply chain management begin and end with tracking and applying the correct shipping data. All organizations realize that keeping shareholders and stakeholders informed is a standard best practice to help avoid surprises within transportation spend. Shippers need to start tracking the correct data and applying the right analytics capabilities, ensuring they genuinely make apples-to-apples comparisons and find a better strategy for managing overall transportation spend across all modes. Intelligent Audit offers these rich insights with advanced analytics and business intelligence and can become an extension of your team in one step. Connect with Intelligent Audit to learn more now.

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