The recent supply chain disruptions created dramatic shifts in the way companies think about organising and managing their logistics operations going forward.
The 2020s have so far been a decade of supply chain chaos. The bull whip effect created by 2020’s lockdowns and 2021 consumer spending was so pronounced that 2022 has seen a significant fall in demand for some parts of the logistics chain (air and sea freight); road freight is also beginning to see some drops in volumes whilst demand for warehousing remains high as retailers clear excess inventory In this month’s blog we look at what 2023 might bring for manufacturers and retailers, logistic service providers (LSPS) and governments across two parts of the logistics transport sector - sea freight and road transport. Next month, we’ll consider the prospects for warehousing in 2023.
We start with sea freight, an area of logistics which over the past 2 years has seen an incredible amount of turbulence. China’s attempts at Zero Covid have seen sporadic, short notice shutdowns in key ports. This caused dispatch backlogs which were then compounded by increased order volumes in 2021 as consumers came out of 2020 lockdowns. The volatility and increased volumes led to an average peak price of over $20,000 to ship a single FEU from Asia to the US in September 2021. By October 2022, this is now at $2,720, around pre Covid norms. See Freight Rate Index
In 2023, as consumer confidence drops, retailers clear excess inventory and increased capacity comes on stream, commissioned in 2021 by the ocean carriers, FEU rates could soon be below $2,000. Don’t expect this necessarily to be passed on to consumers as many major retailers signed up to 2-3 year deals at $5,000 - $7,000 per FEU, which they’ll be desperately trying to exit. In the world of road transport, the fluctuations in demand, lockdowns and profound shift to a better work/ life balance have all heaped even more pressure on an industry which is constantly under significant pressure.
- An industry which has historically competed solely on price in a never-ending race to the bottom
- All whilst operators come under financial pressure from wage inflation, fuel price rises and increasing legislation
- An aging work force rapidly approaching retirement age with not enough new recruits coming through the pipeline
- Unsociable and often long hours with poor facilities on the road and relatively low rates of pay (for many, the recent increases in wages haven’t been enough to mitigate these downsides)
- The romantic vision the public have of a truck driver and their role doesn’t translate to respect on the road and the difficulties driving a 40 tonne vehicle.
- Environmental and safety pressures including limits on operating hours, limits on operating older vehicles and safety concerns of the general public
- Frequent admin and planning problems at drop-off or pick up locations force drivers to extend routes or find creative redelivery solutions
The world of trucking is in on a permanent war footing. Since 2016, well before the supply chain chaos of the past three years, there have been significantly more job postings than hires (Driver Shortage Study). This is not a new problem. In 2023, this will all merely continue.
Why would younger people want to join an industry which in 10 years’ time will be automated? Why would government invest in truck stops when vehicles will soon have no drivers?
Industry bodies do not have a strong enough voice to push through change and freight operators are unable (or unwilling) to provide attractive options to get more people into the industry. The challenges facing short haul transport are different yet just as much of a threat to the industry. Governments and local authorities are fighting back against the daily swarm of vans, scooters and bikes providing next day, same day and ten minute delivery services.
- Rotterdam and Amsterdam in the Netherlands, Lyon and Paris in France and New York in the US (BBC article) have all banned or considering limits on the operations of rapid delivery grocers. Their gripes range from the misuse of retail units as industrial premises (retail vs warehousing); increased and dangerous traffic levels and the changing face of high streets as stores go ‘dark’
- London (article), often a leader in introducing new regulations on vehicles (current schemes include Congestion Charging Zones, Low Emission and Ultra Low Emission Zones, Freight Operator Scheme), is actively investigating the impact of Light Goods Vehicles (typically vans) with concerns about their impact on air and noise pollution, traffic congestion and safety. With delivery drivers paid as little as $1 a parcel, drivers are not incentivised to drive considerately. As with long haul freight, 2023 won’t see a significant move from the status quo. The current focus for operators is the electrification of vehicles, not a profound change in how they’re operated, or managed. An electric vehicle in a traffic jam, is still in a traffic jam and not moving.
What could 2023 and the future look like?
At Value Chain Lab, we believe the wrong question is being asked. Current solutions focus on making today’s ways of working more environmentally friendly with two approaches taken:
- Move the problem – introducing regulations and limitations on when and where vehicles can operate
- Greenwash the problem – electrifying (or hydrogen, bio-diesel etc) makes the output greener, but doesn’t solve the problem itself – there is too much demand on the current infrastructure.
With the support of an Innovate UK grant, we’re embarking on a journey to provide a technology platform which tackles the root cause; a lack of collaborative planning that results in half-empty trucks producing unnecessary costs, emissions and congestion. Through our use of proprietary LMCA algorithms (Load Matching Capacity Allocation) we will break the linear management of supply chains to create a network of networks which delivers logistics’ optimisation in near real time and improved profitability, high service levels and environmental improvements.
If you’d like to find out more about our FLOX platform and take part in Beta trials, reach out to hello@stowga.com to find out more.