In an earlier article, we looked at the various causes of poor schedule reliability and contributory factors. We also covered the consequences of poor schedule reliability for all stakeholders in the transport chain and how it ultimately impacts the TCO (Total Cost of Ownership) and increases prices for consumers the world over.
As congestion and vessel and cargo delays become increasingly common at all ports across the globe, exporters and importers are trying to innovate and find workarounds to minimise the business and opportunity costs of such delays.
In this article, we will understand the various tactics and plans that can help mitigate the impact of poor schedule reliability and supply chain disruptions.
1) Plan well in advance
Planning is the cornerstone of a smoothly functioning and reliable supply chain, and perhaps the most elementary precaution, helping eliminate or minimise the risks posed by most controllable and known factors.
This includes inter alia:
- Better forecasting to procure timely space and equipment availability
- Ensuring that all regulatory requirements are complied with and requisite documents and paperwork kept ready well in time
- Special approvals and documentation with regards to hazardous or reefer cargo are in place
- Planning the shipment such that the latest market conditions are taken into consideration (such as peak season delays, equipment and space availability at locations etc)
- Hinterland connections are booked in advance and in accordance with planned vessel arrival and departure times etc.
2) Moving away from JIT (Just In Time) inventory management and adding buffer inventory and lead times to their supply chains
As businesses have strived to cut costs and optimise supply chains to the hilt, one concept related to inventory management that gained prominence was the Just In Time (JIT) principle.
With global connectivity far improved over the last 3 to 4 decades, companies could count on fast and reliable transport connections to ensure timely delivery of raw materials and finished products to their factories and warehouses. This eliminated to a great extent the need to maintain excess inventory, thus improving cash flows, reducing money tied in inventory and storage and other associated costs.
However, as global congestion and service delays become more common and the interconnected nature of the international Supply Chain magnifies the adverse effects of localised events (such as earthquakes, floods, labour issues etc), companies have experienced higher risks of stock-outs, thus affecting production and sales.
Companies are now, therefore, moving away from the practice of maintaining inventory and stocks at bare minimum levels, and instead have begun keeping a spare inventory, at levels adequate enough to cover production requirements in the event of a short term disruption in transport chains.
Besides, to counter delays arising from schedule disruptions, companies have also started placing orders earlier, rather than waiting until inventory is depleted to the minimum acceptable level.
The building-in of this buffer does increase inventory carrying costs and cash tied up therein, which however is more than outweighed by the potential benefits in terms of providing a cushion against cargo and vessel delays and insuring against the risk of inventory stock-outs.
3) Use a combination of transport modes / innovative solutions – China-Europe rail / Sea-Rail route from Asia to Europe/ routing shipments to Canadian ports and then rail to USA hinterlands
A trend discernible in the past couple of years has been the introduction of new innovative products by Carriers and Forwarders, to help customers overcome the challenges posed by transit and berthing delays.
This included offering rail services from China to Western Europe, Sea-Rail options connecting Far East Asia origins with markets in Europe, Sea-Air options offering a reasonable balance between speed and prices etc. Of late, to avoid the congestion plaguing US West Coast ports, cargo is being carried to Canadian ports and then hauled to US consumption centres via rail.
In exceptional circumstances, cargo owners can take advantage of such solutions to bypass congested ports and corridors, reduce transit times and strike the optimal balance between costs and delivery times.
4) Invest in technology for better planning and visibility at all stages of the transport chain
As the Supply Chain grows more complex, with multiple locations and stakeholders, it becomes increasingly difficult to plan optimally and keep track of the movement of cargo and inventory.
Investing in robust and quality technological solutions will ensure that planning is a lot easier and more scientific, besides providing visibility into each stage of the supply chain and the progress of goods in international trade.
This in turn helps in making the right decisions regarding scheduling EXIM movement of cargo, replenishing inventory levels, avoiding congested trade lanes and regions etc.
Companies are increasingly exploring the use of Advanced Analytics and BI tools to better predict trade flows and demand, leading to improved forecasting and planning.
5) Spread risks by working with different Container Carriers, CTOs (Inland Container Train Operators) and Inland Hauliers:
It is common knowledge that customers with larger volumes are offered better rates by ocean carriers and inland transport operators. This often induces exporters to contract all their cargo to one container carrier, in return for lower freight rates. This practice is also followed while selecting Train Operators and Road hauliers.
While adopting this approach might enable the exporter to avail of lower rates, it considerably increases the counter-party risk of the Carrier not being able to fulfil their contractual obligations (due to causes ranging from the Carriers operational issues, labour problems, financial constraints, overbookings, limited capacity or other factors); all of which result in the exporter not being able to transport his goods.
This risk can be mitigated by working with a pool of Carriers, splitting overall volumes amongst a few reputed and reliable Carriers, often by floating tenders (RFQ – Request for Quotation).
Exporters need to strike a balance between engaging with a reasonable number of Carriers to dilute risks, while also ensuring that the volumes allocated to each carrier are large enough to qualify for preferential terms and fright rates.
6) Identify alternate ports, CFS/ ICDs
Exporters and Manufacturers typically build their supply chains to revolve around certain Ports and using certain CFS/ ICD’s. The selection of these ports/ CFS/ ICD’s is contingent upon a number of factors, right from proximity to the exporter’s premises, to availability of frequent and fast hinterland transport connections, to the port being well-connected with a multitude of services providing global coverage, to sometimes even being a default choice because there is no other port available.
Once a supply chain is built around a certain port, ICD or CFS, the exporter is generally not amenable to even consider making changes thereto, in view of the cost and effort involved in redesigning the entire supply chain.
While this model does offer stability, it also exposes exporters to unduly high risks in case the port/ CFS/ ICD operations are hampered (reasons for which might range from weather-related, labour issues, congestion, poor infrastructure and outdated equipment, breakdown in inland connectivity, civil unrest etc).
It is therefore advisable to incorporate alternate ports/ CFS/ ICD’s in the supply chain, thereby ensuring that the closure of one port will not bring the supply chain to a complete halt, and the exporter still has other viable options from which he can continue to transport goods and raw materials.
7) Spread volumes across different modes (Rail, Road, Barges etc)
Another risk that needs to be diversified to reduce the adverse impact of low schedule reliability is over-reliance on a single mode of transport. A well-designed mix of modes such as Road, Rail and Barges can help the exporter/ importer strike the right balance between reliability and flexibility, helping keep supply chains running even in adverse circumstances.
For example, if an importer is reliant on rail mode for inland movement of cargo, he will miss the train connection if the vessel is inordinately delayed (unless it is an en bloc train movement, where the whole wagon is for his goods).
To counter such exigencies, if he uses a mix of road and rail, even though the rail-destined cargo might miss the inland connection, the cargo destined to be transported inland using Road will still be delivered on schedule (as the truck will not leave without picking the cargo).
Exploring the barge or inland waterways mode might also offer the benefits of cheap and bulk transport, especially if the premises/ final destination is accessible along the coastline. This mode is also promoted by various governments by offering lower rates, so as to ease the pressure off the road and rail network and also because the water mode is environment friendly.
8) Spread shipments across vessels and over a period of time
Instead of sending all containers together, as part of one shipment (which will be loaded on one vessel), a better option would be to split the cargo and book separately, so the cargo is transported on different vessels sailing on different days.
This ensures that even if one vessel is delayed for some specific issue (vessel malfunction, mishaps or incidents on board, Covid cases amongst crew etc), the shipper has cargo arriving on another vessel and had avoided a situation where all their cargo is stuck on one vessel.
Stock levels permitting, it also makes sense to stagger shipments across a few weeks.
9) Always communicate with carriers and hauliers for the latest news and updates on transport movement
Keep in constant touch with the transport operator for the latest updates on the movement of cargo, vessel arrival dates, cut-off dates etc. This will ensure awareness of important milestones in the cargo delivery process and ensure planning around these.
Besides, if there are any potential delays, the exporter and importer are aware and can plan their onward movement accordingly.
10) Keep abreast of the latest news from major souring locations and key markets
Exporters and Importers need to keep themselves updated on the latest developments in their crucial sourcing locations and primary markets, so they are aware of potentially disruptive events and the impact thereof on their business.
For example, if annual labour negotiations are upcoming at a major port, there is the possibility of labour trouble impacting cargo handling and resultant delays (as has been seen to happen in 10-year cycles, at the ports of Los Angeles and Long Beach, involving the labour union ILWU); a scenario for which shippers can prepare by sending cargo in advance or exploring alternate gateway ports.
Similarly, if a major sourcing location like Thailand is impacted by floods, manufacturing activity will be impacted. Now, while extreme weather events are difficult to predict, it is advisable to build excess inventory stocks around the traditional monsoon/typhoon season, to cover for such exigencies.
To summarise, considering that we live and operate in a highly interconnected and unpredictable world, where events in one corner of the world have surprising ramifications in other regions and diverse aspects, it is obviously not possible to completely avoid or cater to unforeseen exigencies and supply chain disruptions.
Therefore, it is inevitable that exporters and traders will be compelled to assume a certain amount of risk while conducting trade on the international stage.
What a prudent manager/ business can do is take certain elementary precautions to mitigate the risks down to manageable levels (or at least be cognizant of potential pitfalls), by following the tips and suggestions enumerated below.
You might also like to read:
- What is a Logistics Cycle?
- What is Reverse Logistics and Recycling?
- What is Accessorial Charges in Logistics?
- What is Sustainable Logistics?
- Packing and Packaging in Logistics
Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendations on any course of action to be followed by the reader.
Maritime Law You Would Like:
Latest Maritime Law You Would Like:
Get the Latest Maritime News Delivered to Your Inbox!
Our free, fast, and fun newsletter on the global maritime industry, delivered everyday.
Jitendra has over 20 years of international experience in the Container Shipping, Ports and Logistics industry, spanning 3 diverse geographies, wherein he has been involved in the commercial and strategic aspects of the container business.