The Container Crisis Choking World Trade And How To Plan Around It
The six trillion euro global shipping logistics market works is a machine where each part of the supply chain used to manage global trade from sourcing destinations to end customer regions works in a carefully calibrated manner. The Covid-19 pandemic has been a shock to the global economy. While most of the attention has been rightly focused on the human and economic costs of the pandemic, with vaccines being approved, the focus has now shifted to enabling normalcy across human connections and business activity.
This will be harder than otherwise possible because without global trade normalization, the economic growth of nations will be constrained, and global trade has a huge container crisis. The United States after settling into lockdown mode went through a huge import binge pulling an unnatural number of containers to its ports. This situation is exacerbated because Covid guidelines mean the processing and throughput at ports and terminals have slowed.
At the same time, China’s economy has come roaring back from its self-imposed pandemic exile. In November 2020 alone exports were 20%+ year on year. With containers stuck in the United States, massive demand in China for any free container, at all ends of the supply chain inordinate waiting times are becoming a norm. For an industry like supply chain which has for decades been introducing demand-driven efficiencies, this container crisis is affecting both planning and costs and forcing greater reactivity from suppliers and retailers.
At Sourcespot we have been managing the fallout from this crisis for months, for our customers helping them adapt to the unpredictability while ensuring strategic objectives are met. A few clear lessons stand out.
Build timelines into planning: Both retail customers and brands, and suppliers need to understand this phase of supply chain uncertainty because imbalanced container loads will stay for a while. Timelines for delivery of raw materials are stretched as are timelines for freight of finished goods. Retail customers and suppliers need to start incorporating these timelines intelligently into their planning to minimize timeline disruptions.
Choose an experienced partner: Having an experienced sourcing partner with a deep network of relationships at each level of the supply chain is important. The margins for delivering within constraints are fine and often comes down to relationships and local knowledge. It is critical to have open communication on both sides as the landscape can shift rapidly.
Decide as a team: This is a strategic issue that affects the entire business. The fallout from incidents and events related to the container crisis are more when decision making is siloed to the procurement, sourcing, and purchasing department. Decisions on arbitrage between costs and timeliness will need to be made as container availability and freight costs suffer from distorted trade flows. Retail customers and brands need to make logistic decisions related to the container crisis a cross-functional decision with finance, product owners, and merchandisers.
The supplier buffer is dead: Suppliers have a big part to play simply by making operations classically efficient because of better planning and collaboration. The expectation that the buyer will “give us a couple of weeks” needs to be taken out of the equation. Shave off every day and week where you can. You will need all of them.
Surging freight costs because of the container crisis and persistent shipping space scarcity from some regions will not go away soon and will remain a part of global supply chains for the immediate future. Smart companies related to international trade will plan accordingly, hustle, collaborate internally and externally, and even build new partnerships to mitigate the possible consequences.