No one anticipated how quickly international freight pricing would drop by the end of 2022. Nor how quickly freight capacity would surpass global demand. In early 2022, most trade and supply chain professionals saw the freight market beginning to stabilize from the record delays, disruptions and price increases prevalent from February 2020 until well into the autumn of 2022.
As we now enter the late spring of 2023, we are witnessing a total reversal of what we have been dealing with in global trade, supply chain and in logistics for the last three years. In fact, on some trade lanes – China to the West Coast of the U.S., as an example – freight pricing for a 40’ container is currently lower than pre-Covid pricing.
Our staff freight analysts watch pricing carefully on a daily basis, and as of mid-May, have observed some pricing stability in the last week or so. Last year, we reported that there was a huge amount of “uncertainty” in global trade. There was a huge gap between demand and capacity, an overabundance of product ordering and a transportation infrastructure not responding as needed.
Today, most of that disruption has subsided. But, uncertainty is still a very dominant factor in global supply chain management decision-making. The uncertainty impacts the following areas:
- Demand Planning
- Business Development
- Manufacturing and Distribution
- Procurement
- Customer Service
- Finance
- Supply Chain
- Logistics Management
When company executives are faced with any level of uncertainty, it makes decisions much harder to evaluate and come to favorable conclusions. In procurement, prior to Covid, a purchasing manager could reasonably expect to place an order internationally and receive the goods within 45-60 days. Through Covid, that time frame could have moved to 270-360 days, with transportation infrastructure concerns tied into excessive freight cost escalations.
In business development and customer service you are attempting to develop new sales but are faced with uncertain product availability and a supply chain that was broken. That uncertainty in sales conflicted with every principle of client relations, including trust, responsiveness, service, performance, meeting commitments, etc. While a certain amount of balance has entered global supply chain management, there is still sufficient uncertainty in all aspects of the global supply chain to cause concern.
That concern needs to be addressed with proactive steps which are outlined below:
Develop Robust Resources
Executives engaged in global supply chain management and all the ancillary operational silos (such as but not limited to, procurement, logistics, customer service, finance, and operations) need to develop robust resources that feed information, solutions and options into their business decision-making process.
This will allow for more informed decision-making.
Develop Freight Options
It is imperative to have numerous options in moving freight internationally. Logistics executives should have four to five serious and trustworthy relationships with the following, to be available when called on:
- Trucking and Drayage Companies
- Service Providers, Forwarders, Customhouse Brokers and 3PL’s
- NVOCC’s, Non-vessel Operating Common Carriers
- Air Freight Consolidators
- Direct to both air and ocean carriers
Utilize Consultants
There are a number of consulting companies that can offer significant guidance, advice and targeted recommendations, benchmarked against like and similar supply chains. Engaging these experts can shorten the time to improve supply chain performance and operations.
Increasingly important, 3rd party expertise can be invaluable during staffing shortages or for staff training and development.
Trade Compliance Management
All the government agencies are focused on import and export purchasing and sales and have various and complicated restrictions that we need to pay attention to in our inbound and outbound supply chains. The penalties, fines and consequences can be severe.
Having trained, experienced staff who know how to navigate the regulations is a very definitive way to avoid compliance headaches. Export controls are becoming more severe to more countries and parties. Import regulations are growing, such as “Forced Labor” controls, making imports from certain countries much more complicated and restrictive.
Supply Chain Assessments and Audits
When was the last time you had a detailed, comprehensive and introspective analysis on all aspects of your global supply chain? Accomplished by an independent third-party professional who can assess risk, spend and seek business process improvements, in areas such as, but not limited to:
- Consolidated Freight Shipping
- Reducing Air Freight vs. Ocean Freight
- Foreign Trade Zones
- Drawback Programs
- Tariff Engineering
- Third-Party Fulfillment and Distribution Options
- Maximum Utilization of Technologies in Global Supply Chain
- Managing RFPs in critical spend areas (Request for Proposals)
It is a “best practice” to self-reflect, assess, and scrutinize current business methodologies, operations, and processes to make certain you are doing everything you can to reduce risk and spend in your global supply chain, operations and business model.
Summary
In 2023, we’ll have a very interesting year, bridging Covid and post-Covid periods. It will also be a transitional year that we need to prepare for and take actions such as those we outlined above to maximize having the best results for our organization in the operation of our global supply chain.
Due diligence, reasonable care, supervision and control … and proactive engagement – all are stalwarts of global trade compliance management. These concepts can be applied to all aspects of the supply chain including procurement, logistics and operations.
The guidelines outlined above are proven action steps that we have successfully utilized with companies in more than 30 years of consulting. And, in this transitional period continue to deliver improved supply chain performance with less risk and lower cost.
Thomas Cook is Managing Director of Blue Tiger International, a global consultancy advising on supply chain management for over 30 years, including trade compliance, purchasing, trade and disruption management, global business and logistics. Blue Tiger’s proprietary four-step process accomplishes a comprehensive global supply chain audit in 60-90 days. For more information, visit www.bluetigerintl.com.
