Brace yourselves for an expensive, rough and rocky year when it comes to the supply chain. From inbound ocean and air freight to the outbound consumer deliveries… the costs will continue to soar. Shipping executives are bracing for more increases and continued bottlenecks, with the unprecedented shipping demand outweighing the required logistical capacities across the transportation sector.
Overall, domestic shipping within the multi modal shipping sector, for moving goods by road and rail in the U.S., were up about 23% last year, according to Cass Information Systems Inc., which handles freight payments for companies. A separate measure in the Logistics Managers’ Index that tracks overall logistics prices, including transportation, warehousing, and inventory prices, reached a record in November, up 3.4% from October and a 14% increase year-over-year.
I’m also seeing reports from Derek Leathers, CEO of Werner Enterprises, a national truckload carrier, where he states that he doesn’t see any relief in this, as long as we remain in an inflationary market where companies are trying to replenish their depleted inventories. He said to, “…expect all of 2022 as a capacity-constrained market with inflationary pressure and with significant equipment disruptions.” This was also reported just last month in an article in the WSJ- Shipping and Logistics Cost rising in 2022.
The article went on to say, “The parcel-shipping prices that are closest to consumers are rising at the fastest pace in nearly a decade as pandemic-driven demand shifts pricing power to carriers that deliver packages to homes and businesses. The duopoly, FedEx Corp. and United Parcel Service Inc., both raised rates higher than the typical annual General Rate Increase (GRI) from 4.9% to 5.9% this year, with the accessorials and surcharges going up anywhere from 4-40%. This doesn’t include the additional Peak Surcharges that now last throughout the year.”
Typically transportation has not exceeded 8-10% of the cost of goods shipped, but many companies are well exceeding that, and have little choice but to start passing it on to the consumer. My prediction is you will begin to see either more shipping and handling fees, otherwise a continued increase of the overall cost for goods this year.
The cost of storing goods and warehousing is as an additional pain point for merchants, especially those that outsource their fulfillment services. This is due to the increase of labor and real estate cost; both also went up to record levels. Prices to lease commercial spaces have jumped more than 25% with labor up by 25-33%. The third-party operators have no choice but to pass on the increases.
As demand continues to increase and we continue to have supply chain disruptions with transportation constraints, workforce shortages, and capacity issues, instability becomes more of the norm that we need to try and find ways to mitigate. It may be time to rethink how you’re doing business. This could include where you’re sourcing and how much you’re sourcing, thus the days of JIT are no longer a viable business practice in today’s environment. Rather than keeping inventories lean you may want to plan for more stock to reduce the transportation, and plan for unexpected delays or shortages.
The new inventory buzz word I learned from Logistyx Technologies, which makes some sense for many trying to manage in this environment, is -Just In Case (JIC). Do what you can to protect against shortages and delays for the unexpected product availability. It a totally opposite strategy especially for CFOs, however when you weigh out the costs for shortages, lost sales, transportation and labor for incoming receipts, you may find you come way ahead by carrying a bit more buffer stock.
AMS can help with inventory management through providing real time data reporting, helping you to make the appropriate adjustments that optimize your inventory levels to minimize risk of outages and or backorders. They can look at the order data and what warehouse it was assigned to, possibly make changes to where the product ships from for the quickest time in transit, possibly reducing freight cost and improving customer satisfaction.
** ** **
About the Freight Freak: John Bevacqua is the VP of Logistics at AMS Fulfillment. His area of excellence is in creating distribution and fulfillment operations that function as a capable interface between suppliers, retailers, and wholesale distributors. His experience includes developing and leading FedEx/ Kinko’s Distribution Services into the FedEx post acquisition, USA Wireless Technologies, and a top Logistics Management company. He has also worked with third party fulfillment companies, preparing him for his current position with AMS Fulfillment.