Harnessing Data Amidst Uncertainty: A Strategic Approach To Sourcing And Spending

When I was given the privilege to write this article, I said to myself, how can I put so many years of experience in a summary that can help or give guidance in this crazy and complicated world of logistics?

I have tried to condense most of my knowledge and experiences as much as possible without leaving key points behind.

3PL

Finding a supplier willing to have inventory sitting down and not creating cash flow is hard. The cost of storage and handling fees take away all the price privileges this process can generate. Incoterms play a very important role in logistics responsibility, and this might also. If you really need to have a 3PL or are lucky enough to find a supplier that is willing and wants to implement this process, take advantage but make sure your Min and Max are updated every other month; this will help you control the supplier inventories that might get you in trouble due to excess since the variation in customer demand plays a key roll in controls and as we know is not always a very accurate projection.

Railways

Long Beach / Los Angeles port is the largest terminal/port in the U.S. While some freight is being discharged in California for local deliveries or cross-border to Mexico, there is still a high number of containers that are moving further inland by rail. The railway from Los Angeles is connected all the way to the Chicago/Midwest region along with the U.S. East Coast. Due to the high volumes coming through the terminal and further by rail, we do experience delays, and in peak season, it can take 10-14 days for the carrier to move the container from the terminal to the railway. This is a major disruption for the U.S. supply chain, and Long Beach is investing heavily in the railway in 2024.

Ports

The congestion in Los Angeles / Long Beach during the pandemic was eye-opening, as more than 100 vessels were waiting outside the terminal to get unloaded. This shows the lack of efficiency and automation, not only in Los Angeles but also in other major US terminals, e.g., New York, Charleston, and Savannah. The U.S. Government is working closely with the unions on how to improve the efficiency of their terminals and if manual labor work can be replaced by automated systems.

Maritime Freight

The recent years have been for the global Ocean freight trade. For several years, the carriers have operated below cost but had historical results during the pandemic, with costs as high as $25,000/container from Shanghai to Los Angeles. 

To compare the years prior to COVID, the cost was $1,600/container for the same trade lane. Currently, the carriers have increased their rates due to the events in the Red Sea and are artificially reducing their capacity by announcing ‘blank sailings’ (Cancelling routes). Due to the events in the Red Sea, the annual negotiations have been postponed – in previous years, the annual rates (NAC) would be valid from 1st April till the end of March the following year. In 2024, this is postponed with a minimum of a month, but we're seeing rate levels that are closer to the pre-pandemic rates.

Fleet Management

The larger ocean freight carriers have placed orders for a new fleet of vessels that will be coming into themarket in 2024/2025, which will bring additional capacity to the market. While it is expected that the old vessels will be scrapped, there will still be a surplus of capacity in the global market. The carriers were forced to get new vessels due to the new shipping regulations to combat global warming; therefore, the new vessels are highly restricted in their carbon release when traveling across the various oceans.

"In this continued period of sourcing and spending uncertainty, it's never been more important to have access to independent, timely, and accurate data to better understand the risks and to identify when to take advantage of ever-changing market conditions"

Storage

Due to all the delays, everyone has opted to increase inventory levels this creating a high demand for qualify storage (Bonded warehouse) and certified warehouses. As a result, high cost and limited space is currently available impacting more the organizations in cost.

Air Cargo and Airports

The global airfreight trade has settled down after some hectic years during the pandemic – the rate level is not down to pre-pandemic due to various reasons: high fuel cost (50 percent of operating a plane is fuel) and big demand for Chinese e-commerce. The largest cargo airport in the world, Hong Kong, reported that 50 percent of the airfreight leaving the former British colony was e-commerce-related business, in particular from Shein, Temu, Alibaba, and TikTokShop. The Chinese e-commerce companies are keeping their inventory in Asia and moving their product by airfreight to U.S. consumers once an order is placed online on their platforms.

Key Takes

In this continued period of sourcing and spending uncertainty, it's never been more important to have access to independent, timely, and accurate data to better understand the risks and to identify when to take advantage of ever-changing market conditions. This will help analyze and create the best logistics routes that are cost-effective and avoid premium costs. Here are some of the strategies some of us are taking to improve logistics:

Strategic Sourcing: Improve supply chain resilience through sourcing diversification. Improve your supplier footprint; try to allocate more domestic suppliers.

Container Buying Strategy: Enable effective buying negotiations and strategic purchases through detailed price forecasts and cost analysis. Fak and Nac rates are super important, which is why the forecast is so important.

Competitive Intelligence: Assess competitors' and suppliers' import and export activity.

Keep an eye on the following:

1. The U.K. and the U.S. have applied new rules to limit Russia's earnings from aluminum, copper, and nickel, but the main result may just be shifting trade flows. The U.S. administration of President Joe Biden is also launching a new range of aluminum and steel tariffs. Indonesia's nickel policies may have claimed another victim while the Chinese government is removing urea export restrictions.

2. The Iranian government's seizure of M/V MSC Aries may disrupt supply chains in plastics and chemicals, while the risk of escalating action with Israel brings an increasing probability of the closure of the Strait of Hormuz. Elsewhere in the logistics sector, shipping volumes via the Panama Canal are set to increase ahead of the peak shipping season and three container lines have outlined ambitious growth plans through 2030.