A few weeks back, we cited statistics that retailers and manufacturers have historically low stocks of merchandise and materials, despite the boom in imports.
This week, The New York Times published an article entitled, “How the world ran out of everything”. The article pointed to various issues, including the fact that by design, the world has relied on limited inventories for decades. We all know the phrase “just in time inventory”. In 1977, Japanese manufacturers (Toyota gets credit) “leaned out” their processes, and just in time (JIT) was born. Many Western manufacturers followed suit.
The New York Times article stated, “…the tumultuous events of the past year have challenged the merits of paring inventories, while reinvigorating concerns that some industries have gone too far, leaving them vulnerable to disruption.” The pandemic-led surge in demand for consumer products has maxed out the ability of the container shipping industry to meet the demand.
At a time when the transportation infrastructure is being asked to run beyond its capacity, “…Just in Time is running late.”
While most manufacturers and retailers are left reeling, the demand for space aboard containerships continues. Cargo volumes are expected to continue to surge 2022 due to low inventories and continued growth in consumer demand.
According to the Journal of Commerce, “The current situation is one of intertwined bottlenecks of port congestion, vessel shortages, equipment shortages, chassis shortages, rail shortages, and truck shortages. Perhaps we should take to calling it the “everything shortage.”
Essentially, the Transpacific Trade is at capacity unless there is a change in the overall processes and procedures to avoid the wasted capacity lost to congestion. Longer term, there will need to be capital investment in terminal capacity.
We don’t expect Just in Time to go away long term, so, how can Digitalization help? Digitalization is all about tools that help people stay organized as they work to manage a global supply chain. Staying organized is not so important when volumes are low, and the global shipping supply chain is running under its full capacity. BUT, when cargo volumes are large, in fact so large that they run above the capacity of the global shipping supply chain, then staying organized is essential to success in a complex and over-stressed environment. Here are some key areas where Digitalization can help.
a) Visibility. Simply put “You can’t fix what you can’t see”. We have written about this before and it’s even more important now.
b) Allocation Management. At the end of the day, the consumer and the importer servicing the consumer just want predictability. Allocation Management is one of the first steps to achieving predictability. From the NVO perspective, this summarizes the space they can count on from each of the carriers and lets them know if their confidence is warranted or if they need to address the shortfalls.
It is essential to be able to secure this data with a few clicks. The reliability of the data goes down in relation to the difficulty put in to assemble the data. If it is hard to assemble the data, then it will not be complete. If the Allocation is integrated into the process, then it’s easy to get the data in meaningful reports.
Lastly on this point, the carriers quickly recognize those that have easy access to the data versus those who do not have access or who are struggling, and the carriers are generally much more responsive to those who they know can quickly and easily see if the carrier has been performing to their allocation commitments.
c) Management by Exception. Tracking a few containers (or not tracking them because everything is moving smoothly) isn’t that hard. You do it every day manually. But no one has time when there are large volume movements to check on every container every day. This is when it becomes essential to set up all of the key events and then check off when each has happened. This allows a user to identify the containers that have problems and focus their attention on just those containers.
This becomes even more powerful when the tracking data is being filled in automatically through connections with the carriers, terminals, satellites, and railroads so that the effort to track is eliminated allowing the user to focus their time exclusively on addressing / fixing the problems.
In the final analysis, the demand for goods is not expected to go down anytime soon. The good news is that this shows an incredibly strong economy in both the USA, Japan, and Europe and that translates into a strong economy for Asia and India and the world economy overall. It is now up to all of us in the shipping industry to figure out how to make the global supply chain predictable, or reasonably predictable, for the importer and consumer. There will be many NVOs/Forwarders that change strategies and succeed in this unprecedented time and there will be others that do not. That’s the opportunity of this place and time.
