HOW TO PLAN FOR SUPPLY CHAIN DISRUPTIONS AND MINIMIZE RISK

Table of Contents

1. Market Shifts and Rising Rates
2. Revisiting Pandemic-Era Strategies
3. Route Utilisation
4. Increased Demand and Early Peak Season
5. Balancing Cost and Value

The freight and logistics industry faces significant disruptions and rising costs, with container shipping rates increasing on major trade routes. Space constraints, extended transit times, and unpredictable schedules highlight the need for businesses to revisit COVID-19-era planning and forecasting strategies. These Black Swan events are creating unprecedented conditions to work with in trying to maintain supply chains stable.

Red Sea disruptions have led to vessel reallocation, and aggressive port skipping has raised freight rates. Early peak season and high demand for cargo space emphasize the importance of advanced planning, flexible supply chains, and proactive communication. Balancing cost and value, setting realistic service expectations, and leveraging strategic insights are crucial for navigating market complexities and managing current disruptions.

Market Shifts and Rising Rates

In recent weeks, numerous reports from mainstream media have highlighted a significant surge in container shipping rates across various global markets during the second quarter of this year. Since the beginning of May, freight rates, excluding additional charges, have risen by an average of 16% on major trade routes worldwide.

This spike is not just a transient fluctuation but appears to be part of a broader trend influenced by several persistent challenges in the industry. Less publicized are the ongoing challenges of limited container space, extended transit times, and fluctuating schedules. These familiar issues underscore the importance of revisiting the planning and forecasting strategies developed during the peak of the COVID-19 pandemic.

Freight Rate Trends

* X equals Base Freight Rate

Space Constraints

The demand for container slots has outstripped supply, leading to tighter space availability on ships. This limitation has forced shippers to compete more fiercely for available slots, driving up prices further.

Extended Transit Times

Compounding the issue of limited space, transit times have lengthened. Several factors contribute to these delays, including port congestion, labor shortages, and disruptions in the global supply chain. These extended transit times have created a ripple effect, affecting delivery schedules and inventory management for businesses worldwide.

Fluctuating Schedules

Shipping schedules have become increasingly unpredictable. Frequent changes and cancellations of sailings, known as "blank sailings," have left shippers grappling with uncertainty. This unpredictability complicates planning and forecasting, making it harder for businesses to maintain reliable supply chains.

Revisiting Pandemic-Era Strategies

The current scenario mirrors challenges faced during the height of the COVID-19 pandemic. During that period, businesses adopted robust planning and forecasting strategies to navigate the disruptions. These strategies included maintaining buffer stocks, diversifying supply sources, and improving communication channels with suppliers and logistics partners.

Strategic Planning

• Enhanced Forecasting: Utilising advanced analytics and market intelligence to predict and respond to market changes.
• Supply Chain Diversification: Reducing dependency on single routes or suppliers to mitigate risks.
• Buffer Stock Management: Maintaining optimal inventory levels to cushion against delays and disruptions.
• Effective Communication: Strengthening communication with logistics partners to ensure timely updates and proactive problem-solving.

By integrating these strategies into their operations, businesses can better manage current disruptions and leverage opportunities arising from market shifts. 

You might want to read: Understanding multimodal logistics: choosing the right strategy

Route Utilisation

Red Sea Issues and Vessel Capacity

The logistical challenges in the Red Sea have significantly influenced recent shipping dynamics. Disruptions in this critical waterway have prompted shipping companies to reallocate vessel capacity to longer, alternative routes. By doing so, they can utilize excess capacity that might otherwise remain idle, maintaining the efficiency and profitability of their operations.

Port Omissions and Rate Restorations

Shipping lines are employing aggressive port skipping, bypassing certain ports to reduce congestion and expedite deliveries. This strategy has allowed carriers to raise freight rates, known as "rate restorations," to recover lost revenues. These adjustments, while necessary to balance supply and demand amid ongoing disruptions, are a testament to the economic challenges the industry is facing. The elevated rates are expected to persist as long as the Red Sea issues remain unresolved.

Impact of Port Congestion

Congestion at major transshipment hubs like Singapore is causing extended container waiting times, leading to delays and supply chain bottlenecks. This adds complexity to route planning and utilisation.

Strategic Planning

To navigate these challenges, businesses should:

• Flexible Route Planning: Adjust routes and schedules in response to disruptions.
• Enhanced Coordination: Work closely with logistics partners for real-time updates.
• Proactive Communication: Keep clients informed about potential delays and rate adjustments.
• Risk Mitigation: Diversify shipping routes and consider alternative hubs.

Increased Demand and Early Peak Season

The spike in demand for cargo space and the early onset of peak season highlight the need for businesses to adopt more proactive and resilient supply chain strategies. By planning ahead, enhancing flexibility, and maintaining clear communication, companies can navigate these challenges effectively and ensure they are well-positioned to meet market demands.

Surge in Demand for Cargo Space

Recent disruptions in the global supply chain have caused a significant increase in demand for cargo space. Businesses are becoming more proactive in securing their shipping needs, driven by concerns about potential delays and uncertainties. This heightened demand reflects a broader trend where companies aim to mitigate risks associated with unpredictable market conditions.

Stock Replenishment and Market Timing

Buyers are increasingly focused on replenishing their stock levels. The fear of running out of inventory, combined with the unpredictability of market timing, has prompted many to stock up ahead of anticipated rises in consumer confidence. This preemptive approach helps businesses ensure they have adequate stock to meet future demand and avoid potential shortages that could disrupt their operations.

Early Onset of Peak Season

Traditionally, cargo demand spikes during the "peak season," which typically occurs in the latter part of the year, coinciding with major retail events and holiday shopping periods. However, current trends suggest that this peak season is arriving earlier than usual. Several factors contribute to this shift:

• Consumer Confidence: An anticipated rise in consumer spending has encouraged businesses to prepare earlier, ensuring they can capitalize on increased sales opportunities.
• Supply Chain Disruptions: Ongoing disruptions, including port congestion and longer transit times, have made businesses more cautious, prompting them to secure cargo space well in advance.
• Inventory Strategies: Companies are adjusting their inventory strategies, moving away from just-in-time models to more resilient approaches that involve higher stock levels.

Strategic Implications for Businesses

To effectively manage this increased demand and early peak season, businesses should consider the following strategies:

• Advanced Planning: Start planning for peak season earlier than usual. This includes forecasting demand, securing cargo space, and coordinating with suppliers and logistics partners.
• Flexible Supply Chains: Develop flexible supply chains that can quickly adapt to changes in demand and disruptions. This might involve diversifying suppliers and shipping routes to ensure resilience.
• Enhanced Visibility: Utilize advanced analytics and real-time tracking tools to gain better visibility into supply chain operations. This allows for more informed decision-making and quicker responses to disruptions.
• Proactive Communication: Maintain open lines of communication with all stakeholders, including suppliers, logistics partners, and customers. Keeping everyone informed about potential delays and contingency plans can help manage expectations and maintain trust.
  
  

Balancing Cost and Value

Balancing cost and value in shipping is not just about choosing the cheapest option but finding the right mix that meets your business needs. By working closely with our team, leveraging effective communication, and utilizing our strategic insights, you can navigate the complexities of the market and achieve a balance that supports your business goals.

Importance of Balancing Price and Value

In the current volatile market, it's crucial for businesses to find a balance between cost and value when it comes to freight rates. While lower freight rates can be tempting, they often come with trade-offs that must be carefully considered.

Tempered Expectations with Low Rates

Businesses should set realistic expectations regarding service levels when opting for lower freight rates. Lower rates might mean:

• Longer Transit Times: Cheaper services might not prioritize speed, leading to longer delivery times.
• Limited Space Availability: Less guaranteed space may increase the risk of delayed shipments.
• Reduced Flexibility: Budget services might offer fewer route changes or adjustment options.

Navigating Market Complexities

Understanding and navigating these complexities requires a strategic approach. Our team can assist in identifying the best balance between cost and service quality for your specific needs. This involves:

• Analyzing Trade-Offs: We help you weigh the pros and cons of different shipping options, considering factors such as cost, speed, reliability, and capacity.
• Customized Solutions: Tailoring solutions to fit your unique requirements, ensuring you get the best value for your investment.

Effective Communication

• Sharing Information: Provide detailed information about your shipments, including volume, timing, and special requirements. This helps us plan and allocate resources effectively.
• Regular Updates: Stay informed about the status of your shipments and any potential delays or issues. This allows for proactive adjustments and mitigates risks.
• Feedback Loop: Continuously provide feedback on our services so we can make necessary improvements and address any concerns promptly.

Strategic Consultation

Consulting with our logistics experts can help you make informed decisions about your shipping strategy. We offer:

• Market Insights: Keeping you updated with the latest market trends and forecasts.
• Risk Management: Identifying potential risks and developing strategies to mitigate them.
• Optimization Opportunities: Suggesting ways to optimize your shipping operations for cost savings and efficiency improvements.

Why Partner with Kerry Logistics

Selecting Kerry Logistics as your trusted partner isn't just a choice—it's a strategic move towards ensuring your success. Our commitment to excellence is not just a promise; it's a guarantee. With a global network that's both vast and meticulously managed, we stand head and shoulders above the competition. This means you benefit directly from unparalleled service quality, ensuring your supply chain needs are met with precision, efficiency, and minimal hassle.

Are you ready to elevate your logistics game and experience seamless support tailored to your unique needs? Let's discuss how we can bring unparalleled value to your business.