When sales forecasts are accurate, companies know they’ll have enough product supply to meet customer demand for those goods. And even if there’s an imbalance, good forecasts allow organizations to course-correct before a real problem emerges. When forecasts are wrong, or when organizations don’t take the time to plan them out in advance, the exact opposite occurs: product outages surface and issues can’t be solved in time. Then, orders are delivered late, customers are unhappy and supply chains stagnate.
With supply chain shortages making the daily headlines this year, the need for good planning and forecasting has come to the forefront for most industries in 2021, a year when everything from steel to lumber to ketchup to bacon was in short supply at one time or another. In fact, disruptions due to supply shortages (e.g., semiconductor chips, plastics, cardboard, etc.) were up 638% during the first half of 2021 and there’s no end in sight to the disruption yet.
“When you’re operating in a volatile market like this, planning and consistency are of utmost importance,” says Tom Bennett, Head of Trades in North America for DB Schenker. The ocean freight sector is facing a particularly high amount of uncertainty right now thanks to ongoing container shortages, port congestion and lack of capacity.
At the end of August, for example, 44 container ships were stuck outside of the ports of Los Angeles and Long Beach in California. A result of the labor shortage, COVID-19-related disruptions and holiday-buying surges, the pileup impacted ocean traffic at two ports that account for about one-third of US imports from China and other countries.
Covering the Demand
In surveying the global ocean market right now, Bennett says there’s not much additional tonnage available. “Carriers are juggling the capacity that they do have into the areas of greatest need,” he says, noting that the situation shows no immediate sign of easing.
In fact, many of the headwinds that the shipping industry faced in 2021—port congestion, equipment shortages, intermodal challenges and blank sailings, among other issues—are expected to remain a factor going into 2022. Add this year’s estimated 8.0% global trade growth to the equation and the situation becomes even more uncertain and unpredictable.
This is where good planning and forecasting can have a positive impact on both shippers and their logistics providers. “The more accurate glimpse of the future we can have,” says Bennett, “the easier it is for the whole industry to plan and get behind covering that demand.”
Planning is King
To companies that are grappling with any or all of the challenges outlined above, Art Chrapko, VP and Head of Ocean USA at DB Schenker, says advanced planning can mean the difference between having your loads covered and scrambling to find capacity at the last minute in a tight market. “Planning is obviously key,” says Chrapko.
For example, he says manufacturers should try to build some additional cushions into their lead time windows—a necessity in light of the port congestion, rail issues and truck driver shortages that carriers are dealing with right now. Work some flexibility into your routing, he adds, knowing that some of the more popular lanes may be more congested than others.
In terms of planning, Chrapko says DB Schenker typically plans for the next three months out and works with carriers to “block” off spots for its customers. “We have the team and tools to help from an inland point of view,” he says, “plus the booking management and allocation team to support our customers.”
In light of how quickly demand has outstripped freight capacity, Bennett says that many of the long-term, fixed deals that used to rein in the transportation marketplace are no longer being adhered to. This is forcing shippers into the spot market and to explore premium-plus deals in order to get their freight moved.
Identify and Focus on Priority Shipments
From the shippers’ perspective, Bennett says identifying and focusing on priority shipments is important right now. Companies should also review their carrier contracts and look for different ways to manage them. With two-tier commitments, for instance, a portion of the business is managed on a fixed contract basis while the rest is managed using the spot market.
Bennett also suggests using multiple gateways—something the typical shipper wouldn’t have considered just a few years ago. “Companies are often focused on using one or two ports, but we’re seeing more of them moving toward using several different gateways,” says Bennett, who also sees more companies using less-than-container load (LCL) as a tool for weaving more flexibility into their supply chains. “Especially for smaller consignments, LCL is an efficient way to get freight moved.”