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Resource Center 04
DISRUPTION IS INEVITABLE

Reducing costs, securing capacity, meeting consumer and market demands, as well as managing service expectations, have always been top concerns for supply chain and transportation leaders. Disruptions can negatively impact a supply chain manager’s ability to deliver on these goals.

Supply chain disruptions come in various forms and can be driven by both internal and external factors. A vast majority (81%) of supply chain managers have already experienced a disruption in the last year.[1] The consequences of not being prepared for these disruptions can be detrimental.

Between 2000 and 2010, losses caused by supply chain disruptions averaged $115 billion per year. That figure escalated to $380 billion in 2011, and is expected to be even higher in 2015.[2]

What Does This Mean For Supply Chain Managers?

A supply chain manager's ultimate transportation goal is to move goods from point A to B in the most efficient way possible. In today’s transportation landscape, managers are increasingly tasked to do even more with fewer resources

Over half (66%) of overall logistics’ expenditures are attributed to transportation-related costs.[1] As such, CFOs are increasingly looking to their supply chain leaders to maximize efficiencies in order to protect the bottom line. An important aspect of this means building a diversified transportation network that can adapt and flex to avoid disruption.

Some disruptions can be predicted, while some are completely unexpected, but they are all inevitable.

 

The best defense against disruption is building a resilient and adaptable supply chain that is strengthened through an optimized transportation network. Understanding and proactively managing pending disruption is critical to long-term success.

Here are the top 5 common supply chain disruptions and how they can impact freight networks:

1. Productivity Hampering Regulations

‚ÄčElectronic logging device (ELD) implementation in 2017 will cause a 3% reduction in trucking capacity,[3] and the Journal of Commerce (JOC) expects it to be the single largest disruptor of industry capacity.

The bulk of the resulting capacity reduction will be from the lower truck utilization that the ELDs allow. With ELDs, drivers will be forced to comply more strictly with safety-driven regulations, which will reduce the daily number of miles a driver can legally operate.[4]

Though the majority of the nation’s largest LTL and truckload carriers are already ELD compliant, most of the smaller carriers, which make up about a third of the industry capacity, are not. However, a recent LaneAxis Virtual Freight Management study revealed that the largest trucking firms outsource over 40% of their freight to these smaller carriers, indicating that all carriers – both large and small, may feel the productivity impacts of ELDs.[5]

In addition to ELDs, the latest changes to the federal Hours of Service (HOS) will shave time off truck drivers’ working days and weeks, cutting productivity by 2 to 5 percent by most estimates. These regulations are further dwindling the amount of wiggle room carriers have in planning trips and managing their fleets. The result will push smaller carriers out and shrink capacity.

2. Fluctuations in Inventories

Freight transportation is closely tied to inventory levels. When inventories deviate from normal, truck capacity is affected and the resulting supply chain disruption can domino for extended periods of time.

Today’s current loose truck capacity can be attributed in part to excess inventories that resulted from West Coast port strikes of 2014-2015, which resulted in a relative freight standstill that tied up $7 billion in inaccessible inventory. The 29 West Coast ports that were shut down for less than a week in early 2015 took several weeks to clear up and cost the companies, especially retailers, billions of dollars.[6]

The shutdown created a capacity crunch that left not only retailers, but shippers across all industries, scrambling for capacity. Spooked shippers held onto inventories and freight experienced a decline waiting for those inventories to deplete. However, inventory levels are expected to finally right size this December, which will consume some of today’s excess capacity.[7]

Shippers who are not prepared may find themselves revisiting the days of tight capacity they faced a few years ago. Proactively creating a contingency plan through securing alternative capacity can minimize the negative impacts of tomorrow’s disruptions and deliver cost savings today.

3. The Great Driver Shortage

Just as productivity-hampering regulations take hold and inventories return to normal, the ongoing trucking challenge of the rapidly shrinking driver pool will reach its climax.  

Regulations will result in fewer truck miles, and fewer miles will result in smaller paychecks for some drivers. This will force some drivers out of the industry, at least in the short term, further reducing the available driver pool and available truck capacity.[8]

As the existing driver pool ages and retires, it is becoming harder and harder to attract, replace and retain them. The annualized turnover rate for large truckload fleets is now at 102%,[9] and the American Trucking Associations (ATA) warns that the shortage of drivers could reach 175,000 drivers by 2024.[10]

Some private forecasts said the magnitude of the shortage could be worse than that.[11] Carriers cannot compete with other industries that offer higher pay, more freedom and time at home.

4. Natural Forces

Extraordinary events beyond anyone’s control, like seasonality and natural forces disrupt supply chains at home and abroad.

A mild winter can affect the sales of heavy coats and boots, resulting in skewed inventories of winter apparel. On the other end of the spectrum, the snow storms that hit the Northeast the winter of 2013-2014 caused issues across all modes of transportation as highways and rails were impacted causing delivery delays across the country.[12]

Natural forces can have devastating effects on supply chains and transportation networks. The repercussions can be felt days, even weeks after the event. Networks without a contingency plan or alternative capacity sources in place risk exposing themselves to a single point of failure when disaster strikes.

5. Shifting Consumer Trends


‚Äč

Consumer spending patterns have changed since the onset of the Great Recession in 2007. American consumers are spending more on non-tangible goods, which produce little freight. Home internet, cellular phones and health insurance are the three fastest growing expenditures, where spending on tangible goods like furniture, major appliances and apparel is on the decline.[13] This shift in consumer spending patterns, coupled with a strong dollar and low fuel prices, is hurting today’s industrial production and domestic freight volumes. As consumers continue to gain spending confidence and the housing market rebounds, spending habits could change and increase demand placed on freight carriers. [14]  

Consumer spending is cyclical and so is capacity. The shipper who prepared before the pendulum swings will be in a much better place than the one who wasn’t. Prepare for tomorrow today.

 

IS YOUR TRANSPORTATION NETWORK PROTECTED?

It’s easy to get stuck in thinking only for today, but long-term and sustained success comes from also thinking about tomorrow. Today’s capacity has an expiration date, and disruptions are coming. Shippers who are not prepared will expose their supply chains and organizations to unnecessary risk that can have long-lasting effects.

Since less than a quarter of organizations currently have a Chief Supply Chain Officer in place to help orchestrate a response to disruptions, supply chain managers have a unique opportunity to grow and protect their organizations’ bottom lines through proactive disruption management and transportation optimization. [15]

Interested in learning more about supply chain disruptions and the key strategies to navigate them? Connect with an intermodal transportation expert today.

 


[3] Fleet Owner article, Coping with the ELD curve

[5] LaneAxis Virtual Freight Management study, Top Carriers Outsource Nearly Half of Freight Shipments

[13] Bureau of Labor Statistics for U.S. middle-income spending data

[14] U.S. Housing Market Conditions, National Housing Market Summary and Data

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