Rising Transportation Costs

Introduction

Parts of the global supply chain saw major disruptions in 2019 and more in 2020. Companies looking to ensure their supply chains remain intact have two choices: They can plan, prepare and be ahead of the trends, or stay in a wait-and-see mode.

Forward thinking companies are using analytics found in today’s enterprise resource planning (ERP) software to anticipate changes in customer behavior and balance their supply chain. They are closely watching fuel prices for changes that might make obtaining raw materials and shipping finished products more expensive. They are verifying that the quantity of product leaving their facilities meets demand while avoiding compromising quality.

Three supply chain disruptors in 2021 include:

• Transportation costs
• Covid-19 fallout
• Increasing visibility into product compliance

Transportation Costs

US logistics costs dropped 4% to reach $1.56 trillion, or 7.4% of 2020’s $20.94 trillion gross domestic product (GDP). The pandemic forced many global supply chains to screech to a halt and then start back up. Again and again.-CSCMP’s State of Logistics Report 2020

Let’s take a look at the first disruptor: transportation costs. The strong economic growth of 2018 caused commercial transportation costs to rise. 2020’s pandemic made transportation worse as demand continued while the availability of truck drivers and airline flights plummeted. Those were just two of many activities impacting pharmaceutical and chemical companies’ supply chains.

Among the current transportation issues are:

• 20% – 25%: The national van truckload tender rejection rates (the percentage of electronic requests for capacity declined by carriers) since August 2020
• 20%: The van truckload spot rate increase in February 2021 affecting 10%-20% of trucking market freight volume
• 12%: The increase in retail fuel costs in February 2021

Pandemic quarantines meant fewer consumers were making trips to stores. This in turn boosted online orders through companies such as Amazon.com, boosting pressure on the commercial transportation sector.

Truck Driver Availability

Truck driver availability is another major issue plaguing supply chains. Commercial transportation companies are facing major challenges recruiting and keeping drivers, including:

1. 1.Attracting new talent with 57% of the workforce now 45 or older and 23% 55 or older
2. 2.Losing 62% of potential workers to warehouse jobs, which are being filled by people under 45
3. 3.Dealing with workers wanting a work-life balance that requires short trips when demand is for more long haul (over 250 miles) drivers
4. 4.Posting more jobs than hiring by a 9:1 ratio
5. 5.Skill and experience gaps between the desired and available drivers
6. 6.Reducing truck driver job posting activity between 2019 and 2020 by 38%

Adding to this issue are safety regulations limiting drivers to work no more than 14 out of every 24 hours.

Recruiting Drivers

To address the rising shortage of drivers, freight companies are providing incentives to attract more people into the field and increase employee retention. Methods listed by SHRM include:

• Raising pay so that private fleet drivers now earn an average of $86,000 a year up from $73,000 in 2014
• Broadening the applicant pool by recruiting women, military veterans and younger drivers
• Being flexible with time off

Other Transportation Woes

Another growing supply chain transportation issue points to international regulations impacting ocean-freight based shipping. At the start of January 2020, new limits came into play in order to protect the environment and improve air quality. IMO 2020 restricts the amount of sulfur in the fuel oil used by ships. The previous emission limit was 3.5%. Under IMO 2020, this compulsory limit drops to 0.50%.

The emission limit was reduced to 0.10% in four emissions control areas:

1. 1.the Baltic Sea
2. 2.the North Sea
3. 3.the North American area covering parts of the U.S. and Canada and the U.S. Caribbean Sea cover Puerto Rico and
4. 4.the U.S. Virgin Islands

Reducing the sulfur content of fuel oil helps minimize sulfur oxide emissions that negatively impact human health and contribute to acid rain.

Compliance is expected to boost container shipping fuel costs by $25 billion – $30 billion through 2023, according to a report by BCG.

Covid-19 Fallout

To date, the Covid-19 pandemic has killed more than 4 million people worldwide, more than 606,000 in the U.S. alone.

• 72% of businesses across trade, finance, plus health and education systems reported a negative effect. 17% of that was a significant negative effect.
• 3% of firms reported a significantly positive effect
• 8% of firms reported a mostly positive effect

Firms reporting a positive impact were in the life sciences sector, especially those producing essential products such as vaccines, Ernst & Young’s report noted.

Increasing Visibility into Product Compliance

Compliance in the supply chain is nothing new. Companies in every sector conform to Occupational Health and Safety (OSHA) regulations plus state and local versions. Pharmaceutical companies work on FDA compliance every day.

What is new however, is increased visibility.

Especially when dealing with large, diverse supply chains that might involve hundreds or thousands of suppliers, many companies are switching to integrated networks. Using these networks, though, requires retraining the workforce to adjust to the new digital way of doing business.

“Increased visibility is the TOP priority over the next 12-36 months and a top 3 priority in the next year,” a 2021 report from Ernst & Young states.

Ernst & Young’s survey found that 63% of companies were investing in increasing automation such as using internet of things (IoT) connected devices, machine learning and artificial intelligence (AI) to boost productivity and increase efficiency.

Using enterprise resource planning software lets companies achieve a 360-degree view into supplier performance, customer review and manufacturing outputs while crunching millions of data sets. ERP systems are designed to help companies anticipate potential problems and find solutions before the issues become acute.

For example, a chemical manufacturer installs sensors on reactors that can alert production staff when temperature changes occur. An alert sent from the sensor through SMS messaging directly to maintenance and production crews can let them take action before an expensive batch is ruined.

ERP software such as Microsoft Dynamics 365 Supply Chain Management allows companies to stay on top of issues before they become problems.

Key Takeaways

1. 1.While a global economic boost is great, we find there’s always a downside that leads to a challenge. A strong economy is great for supply and demand for business, however the shortage of qualified workers to fill those jobs can cause significant issues
2. 2.There is an increasing concern for disruptions that are beyond human control. Things like the recent COVID pandemic, along with the resulting damages are factors that companies may never have planned for, but we now know the risk exists.
3. 3.The strong global economy has resulted in a trade war, affecting imports and exports across the globe. The ongoing tariffs between the US and China doesn’t just affect those countries, the entire world will have to deal with the effects of increased import costs.