What We Learned Between 2020 and 2023
Supply chain disruptions in 2022 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 chaos across the entire supply chain. 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.
Sea Freight
Beginning with sea freight, an area of logistics which between 2021 and 2022 saw 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 was at $2,720, around pre Covid norms. See Freight Rate Index.
In 2023, as consumer confidence dropped to due to not meeting customer expectations, retailers cleared excess inventory and increased capacity came on stream, commissioned in 2021 by the ocean carriers, FEU rates were predicted below $2,000. We didn’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 would 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 had 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
Short Haul Transport Problems in 2023
The world of trucking was on a permanent war footing. Since 2016, well before the supply chain chaos of 2020/2022, there were significantly more job postings than hires (Driver Shortage Study). This is not a new problem. In 2023, this was all likely to continue.
Why would younger people want to join the supply chain industry which in 10 years’ time will be automated? Why would government invest in truck stops when vehicles will soon have no drivers?
Supply chain industry bodies did not have a strong enough voice to push through change and freight operators were unable (or unwilling) to provide attractive options to get more people into the industry. The challenges facing short haul transport were 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) banned or considered limits on the operations of rapid delivery grocers. Their gripes ranged 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 (schemes included Congestion Charging Zones, Low Emission and Ultra Low Emission Zones, Freight Operator Scheme), were 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 were not incentivised to drive considerately. As with long haul freight, 2023 was unlikely to see a significant move from the status quo. The focus for operators was 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.
The Bullwhip Effect
As we mentioned earlier, the bullwhip effect created by supply chain challenges over 2020 to 2022 highlighting limitations of traditional approaches to management of agile supply chains.
The Bullwhip effect created by 2020’s lockdowns, 2021 consumer spending and continuing supply challenges have led to uninterrupted supply chain chaos. So how did this affect supply chains in 2023? Earlier in November 2022, we looked at the impact on sea freight and road transport. In sea freight, Covid lockdowns and huge spikes in volumes saw the cost of a transpacific 40” container peak at over $20,000. It’s was rapidly declining and sat near 2019 rates of around $3000. Road transport experienced a challenging time with numerous stories of layoffs and reduced rates, particularly in North America.
Air Freight
In the air freight sector, several factors challenged supply chain processes. November and December are critical trading times for retailers globally, with the big holiday periods of Thanksgiving and Christmas supplemented with large promotional periods such as Black Friday and Single’s Day (11.11).
Retailers were continuing to clear excess inventories meaning the requirement to ship new stock is limited. Volumes at Cathay Pacific, once the fifth largest air freight carrier dropped 36% vs pre Covid levels and 25% vs 2021. In addition, consumer confidence was waning in anticipation of a global recession and soaring energy bills.
There’s also evidence that consumers are fatigued with constant promotions and losing confidence in the true savings of Black Friday and Single’s Day promotions. As consumers battle soaring energy prices, carriers face ever increasing fuel bills. UPS raised its fuel duty rate as prices continued to fluctuate significantly, further impacting the viability of air freight for retailers.
2023 Prediction from Patrick Berglund
Looking at 2023, there wasn’t too much to be happy about. This extract from Logistics Update Africa provides a perfect synopsis of what was to come for that year:
“The sector faces a bumpy ride as lower ocean costs and better schedule reliability from easing port congestion and available capacity may tempt some shippers to make a modal shift. Patrick Berglund, CEO of Xeneta and supply chain leader, believes that increasing belly capacity, with easing travel restrictions, will be supplemented by the arrival of conversion and freighter orders placed during the air cargo peak. This will lead the air segment to join its ocean freight sibling in the overcapacity corner, with a negative impact on load factors and rates. Berglund underlines the complexity of challenges facing the industry with economic uncertainty, geopolitical concern (not just relating to Ukraine), ongoing industrial action on logistics chains, China's continued zero-Covid policy and the combination of weak demand, easing congestion and increased freight capacity.”
Warehousing in 2023
In warehousing, the picture was less clear. It’s not like we’re able to look at how Artificial Intelligence impacts warehousing operations like we can do in modern times. The Bullwhip effect hits warehousing last (just before retail) in the supply chain and retailers continue to clear excess stock, with many expecting to reduce pricing further post Black Friday sales.
Going into 2023 many businesses were taking different approaches. As one of the world’s biggest retailers, many people will always look at what Amazon does as leading the market. In May 2022, Amazon announced they were looking to offload 10-30 million square feet of warehousing space – anywhere up to 15% of US capacity. CEO Andy Jassy stated they’re no longer chasing staff nor capacity – an incredible shift from 2021 when businesses were paying significant holiday period bonuses. Since then, Amazon’s outlook has not improved with layoffs across the conglomerate continuing into 2023.
Warehouse space shortage
Conversely, there remained an intense shortage of warehousing space. In the UK, there were 2 month’s demand of vacant warehousing space. If you want to explore what’s happening in modern times with warehousing and storage services then we have an article for you. To go back to 2023, James Short, a senior surveyor at Avison Young said about the situation:
“Although national (UK) take-up levels year to date have fallen short of 2021’s total - 40.28 million sq ft - this has been driven not by the current economic climate but by a chronically undersupplied market. Availability of grade A space across the UK stands at 24 million sq ft, equating to only two months’ worth of supply based on demand of the last three years.”
This was leading retailers to change their approach to fulfilment across their retail and industrial properties. The US retailer Macey’s was converting 1 million sq ft of retail space across 35 stores to support 2022’s holiday sales. With a mix of automated and manual warehousing solutions, Macey’s anticipated being able to fulfil orders more quickly and cheaper as they aim to right size their inventory. This was hot on the heels of Target and Walmart in the US and Boots, Marks & Spencer’s and many of the grocery multiples in the UK. We explore the benefits of fulfillment centre services here.
What could the future of supply chain logistics look like post 2023?
We took a look at the future of people in the supply chain. At FLOX, regarding supply chain issues, we believe the wrong question is being asked. 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 platform, sign up to FLOX today.