Trade route disruptions around the globe in recent months have served as an important reminder in the world of logistics on the importance of being ready for anything.
While there are signs that the ripple effects caused in the supply chain by terrorist attacks targeting shipping on the Red Sea may be normalizing, it won’t be long before supply chains hit another snag. Being ready in a way that minimizes the impact on the end consumer should be the lesson from the Red Sea and other trade route disruptions of late.
Many ships carrying consumer goods have avoided the Red Sea by navigating south of the Horn of Africa and around the Cape of Good Hope. Similarly, vessels avoiding low water levels on the Panama Canal have been forced to take the long way around via Cape Horn on South America’s southernmost tip. In recent months, these extended voyages have meant a sharp spike in operating costs and shipping delays that are naturally transferred to consumers.
It’s a reminder that this work can oftentimes feel like a never-ending game of dominos, dealing with upended supply chains from the manufacturer right up to the customer’s doorstep. And once a disruption is in motion, it can be very hard to unwind.
Most Commerce Travels the High Seas
The more we see these events occur, the more we’re reminded that a staggering 90% of global trade is transported on the world’s oceans. When there’s a “bottleneck” or some other disruptive event on the high seas, the effects can be quite dramatic. The consumer often feels this in the form of a lack of inventory, or maybe a higher-than-normal price at checkout.
Global trade is constantly growing, meaning with more and more ships burning more fuel, paying their crews more to be at sea for longer periods of time, the added cost has to land somewhere. Even without the disruption of the day, it’s nearly impossible to avoid passing those costs along to the consumer.
After peaking just under $4,000.00 in January, the Drewry World Container Index still shows the price of a shipping container elevated at around $3,000.00 per container. This is in sharp contrast to the situation late last year when that cost stayed below $2,000.00.
If we’ve learned anything from issues in the world’s supply chains in recent years it’s their intricate nature and how one seemingly “isolated” issue in one far away corner of the world can be felt in a big way down the chain, on the other side of the globe. No matter which sector we work in within the supply chain, being experts at any moment and knowing what to do is critical in overcoming hurdles that arise.
Managing Retail Supply Chains in Age Disruption
As the end destination for suppliers and the final step before reaching consumers, retailers, whether e-commerce or bricks and mortar shops, have a special balance to strike when it comes to navigating supply chain issues and keeping customers happy. The good news is there are some simple things that those in the retail sector can do to mitigate the impact, keeping prices for customers in check.
- Plan Ahead - Be proactive about creating a demand planning forecast, contracting with suppliers to begin manufacturing sooner.
- Diversify Suppliers - Relying on a single supplier can be a big mistake that only magnifies the impact of disruptions in the supply chain. Retailers can eliminate this concern by diversifying their base of suppliers, sourcing from multiple regions, spreading out the risk posed by the potential for disruptions.
- Monitoring & Communication - Being able to monitor the supply chain in real time and communicate in real time with partners down the chain is invaluable in being ready to pivot. Having access to such systems enables proactive decision-making and fast response times.
- Inventory Management - Maintain appropriate levels of the most popular items to help weather against disruptions. While holding excess inventory can tie up capital, having a strategic buffer can help absorb shocks from future disruption. Importantly, having such a buffer buys time when it comes time to pivot.
- Alternative Transport Methods - Evaluate alternative methods of transportation such as air freight, rail, or trucking to bypass affected supply routes and expedite deliveries. Changing the inbound destination port should also be a consideration. While such options come at a higher cost, they can be critical during times of disruption to ensure timely delivery.
- Resilience Planning - Build out contingencies for various scenarios, including measures to address various types of disruptions. This could involve identifying alternative routes, backup suppliers or temporary storage facilities.
- Technology Investment - Leverage technology such as Warehouse Management Systems (WMS) and Transportation Management Systems (TMS) to enhance inventory management, visibility, traceability and efficiency in the supply chain. These systems can provide early warnings that can prompt proactive resolutions.
Avoid the Fallout
These simple areas can go a long way in helping retail and e-commerce businesses protect their customers from the worst residual price hikes from supply chain disruptions.
First and foremost, these tactics can help to mitigate or even avoid the need to pass along increased costs to customers. Out of stock inventory and lost sales, reduced competitiveness and even brand damage are the alternatives that certainly no one wants to deal with.
We learned during Covid-19 how impactful supply chain disruptions truly can be and today we’re seeing those lessons continue as new scenarios play out as disruptions seem to become more commonplace. Knowing your options and being ready to act are the name of the game.
