As 2022 unfolds, supply chain and logistics leaders are under enormous pressure. Capacity constraints, skyrocketing shipping costs, geopolitical conflict, and frenzied consumer demand for goods exacerbated by a shortage of inventory, containers and drivers (and human resources more generally) continue to hinder the efficient flow of goods.
Faced with unabating supply chain disruptions on a global scale, the spotlight is on importers and logistics service providers (LSP) to pivot quickly and rethink their supply chain tactics, strategies, and
technologies to drive competitive differentiation amidst the chaos.
Many of the challenges brought to light by the pandemic are here to stay and companies need to adapt to survive. Here are five factors impacting logistics and supply chains that will determine companies’ performance in 2022 and beyond.
1. CONSUMER DEMAND DRIVING RECORD IMPORTS
Due to pandemic-related restrictions that began in 2020, consumer spending shifted away from services, such as travel, entertainment, and dining out, towards the purchase of durable and non- durable goods, like electronics, appliances, clothing, and groceries. Notably, a sizeable chunk of those purchases was made online. Two years into the pandemic, consumer spending on goods is still at dizzying heights.
The explosive retail growth is reflected in record import volumes that are showing little sign of slowing down: U.S. container import volume in February 2022 was up 12% from January 2021 and 38% from February 2020. These unprecedented import volumes continue to strain global and domestic supply chain and logistics operations.
Whether the Russia/Ukraine conflict or rising inflation dampen consumer demand is to be seen, but unless consumer buying behavior shifts back towards service-based spending in lieu of goods, importers and logistics service providers (LSPs) will experience little relief.
2. CAPACITY CONSTRAINTS ESCALATING COSTS
The current logistics infrastructure has failed to keep up with freight demand, creating an acute capacity crunch in the U.S. at ports and across last mile distribution. With a shortage of logistics workers, coupled with a lack of drivers to move shipments, importers and LSPs are struggling to transport goods efficiently and cost-effectively.
In addition to the strain of increased import volumes, a large imbalance in logistics assets is compounding the issue, impeding the ability to keep goods flowing. Ocean containers are in short supply, as empty assets are immediately being returned to Asia to take advantage of the high shipping rates ocean carriers can command to move goods to North America or Europe. The air cargo industry is also grappling with its own acute asset shortages, as global inventories of unit load devices (ULD), the pallets and containers used to move shipments by air, are straining the efficient movement of goods.
To combat capacity constraints and escalating transportation cost —including rapidly rising gas and diesel prices due largely to the recent sanctions imposed on Russia—supply chain and logistics
operations must be more productive and effective with resources that already exist. Companies need better visibility to assets to maximize their utilization and rebalance their location over time. Optimization will also be critical to reduce warehouse and transportation inefficiencies and increase the effectiveness of currently available assets.
3. RESOURCE AND INVENTORY SHORTAGE
The resource shortage is a growing concern. Baby Boomers are retiring at accelerated rates, with the pandemic pushing more than 3 million baby boomers into retirement. With Millennials not seeking out logistics and supply chain jobs, retailers, distributors, and logistics companies are struggling to meet customer demand.
In light of the worker shortage, companies are recognizing the need to reduce their dependence on manual labor and focus resources on higher-value work that improves financial performance and customer experience. To this end, successful organizations have adopted the “do more with less” approach, automating manual processes and optimizing existing resources with best-in-class technology.
Automation that scales warehouse worker productivity, eliminates time-consuming manual paper-based manifests and proof-of delivery, and enables customers to self-service book and track shipments and schedule delivery appointments will be crucial for increasing operational efficiency and protecting the bottom-line during disruptive times.
The shortage of drivers continues to compromise trucking capacity, contributing to disruptions in the flow of goods. According to the American Trucking Associations, the current U.S. driver shortage stands at 80,000, with a projected shortage of 160,000+ drivers by 2030. Over the next decade, the trucking industry will need to recruit nearly one million new drivers in order to close the gap caused by freight demand, projected retirements, and other supply chain pressures.
The driver shortage is forcing companies to be more effective and efficient with existing resources, emphasizing driver retention and productivity strategies. By optimizing delivery routes using AI-driven route planning and optimization solutions, businesses can improve the overall productivity of their existing drivers while improving drivers’ quality of life to prevent churn.
4. SUSTAINABILITY FOCUS
With more governments putting environmental plans into action and consumers making purchasing decisions based upon a company’s sustainability performance, the spotlight is shining on supply chain and logistics operations to take a leading role in the effort to reduce greenhouse gas emissions.
Rather than viewing this as another problem to address, successful companies recognize that improved supply chain performance and betterment of the environment go hand-in-hand; CO 2 reduction is an opportunity for savings and improvements across the board: efficiency, cost, time, resources and, of course, environmental.
The unsung heroes of sustainability, performance improvement programs in supply chain and logistic operations almost always result in less CO 2 production. Whether offering eco-friendly delivery options, minimizing distance and fuel consumption with route optimization solutions, eliminating paper documents by digitizing logistics processes, or reducing wasteful vehicle congestion, idling, and speeding, companies can improve both performance and the customer experience while helping the
planet.
5. GEOPOLITICAL CONFLICT
Given the globalization of supply chains, the logistics-related impact of geopolitical conflicts, even at a regional level, can be severe. Companies must make tactical, strategic, and technology decisions to weather today’s conflicts while minimizing the impact of future ones by building more resilient supply chains. And with cyber warfare now a staple of geopolitical combatants, supply chain resiliency must include the ability to withstand attacks to the IT infrastructure that runs today’s supply chains.
In response to geopolitical conflicts, countries often enact economic sanctions to combat aggressors, as with the current sanctions against Russia in response to the Ukraine invasion. One of the greatest challenges organizations face is examining trading partners, sanctioned individuals and ownership structures in their supply chain to determine whether it’s safe to continue to conduct business with them. In today’s climate, forward-thinking importers and LSPs rely on automated denied party screening systems and export compliance solutions to simplify screening and mitigate risk.
With the potential for global conflicts and related sanctions to negatively impact the flow of goods domestically and internationally, companies also need to evaluate alternate sourcing strategies as part of their annual risk analysis to diversify the impact of potential supply chain disruptions.
LOOKING AHEAD
Importers and LSPs will face a congested, disrupted, expensive, and frustrating 2022 and must strategically consider the longer-term impacts of the ongoing crisis in global shipping. On a more positive note, supply chain and logistics leaders who master the art of finding opportunities in uncertainty, doing more with less, and building customer-facing and environmentally friendly supply chains will guide their organizations through the turbulence of current and future disruptions.
