After nearly two years of disruption, supply chains across the globe remain dramatically out of sync, with congestion at seaports marking the latest problem in a long line of pitfalls. Ocean shipping, facilitated by ports, makes up the lion’s share of global trade, exacerbating the scale of this most recent issue. In 2021, the waiting time for vessels at ports skyrocketed, with 10% of the world’s container capacity idling.
Supply chain stresses are so fraught that the Biden administration has committed to working closely with retailers and rushing mitigation measures at U.S. ports.
In the face of major supply chain disruptions like port congestion, there are proactive measures you can take to mitigate the risks to your supply chain, starting with multi-tier visibility. Even if you know your first-tier suppliers are mainly domestic, enabling limited exposure to seaports, a staggering 50% of disruptions in supply chains occur below the first tier. Following are a few key insights into how your supply chain may be impacted by the reverberations of port congestion, and what you can do to protect yourself.
Supply Chain Visibility
In order to avoid the impacts of port congestion, it’s important to first increase visibility into your supply chain — ideally with a view of multiple tiers. These four steps are a great place to start:
Risk Mitigation Strategies
Once you’ve established visibility into your supply chain, it’s important to implement tangible strategies to act on that information and reduce your overall risk.
Professor David Simchi-Levi at the MIT Data Science Lab has long advocated for stress-testing supply chains in order to understand risk exposures and support proactive analytical approaches. Modeling supply chain data from China’s COVID-19-related restrictions, his team correctly predicted that it would take five weeks for U.S. companies to feel the impact. By leveraging this lead time, companies can have informed, proactive discussions about mitigating an event like severe port congestion.
When engaging in these discussions, supply chain leaders should consider these key strategies:
Ultimately, many companies will simply need to accept inevitable increases in shipping and input costs through this period of disruption, signaling margin erosion and price inflation. Companies can also expect that inflation-indexed pricing in customer contracts will rise in importance as a mitigation strategy.
Is Improvement on the Horizon?
Most experts believe the supply chain bottlenecks, exemplified by recent port congestion, will last late into 2022 and possibly 2023. Much will depend on whether or not demand for consumer goods remains high. The reduction of government stimulus and efforts by central banks to reduce non-transitory inflation might eventually suppress demand. At the same time, additional hiring and production capacity increases will increase supply.
Regardless, COVID-19 has unveiled the need in the U.S. to upgrade infrastructure, and for federal support to resolve port disruption. The adjacent ports of Los Angeles and Long Beach, California, are set to become more automated like their global counterparts, which are twice as productive and are more efficient at sorting containers.
The latest supply chain troubles reinforce the importance of understanding the multi-tier, product-specific flows of goods through the supply chain. Connecting your procurement and transportation management systems to a living knowledge graph of global supply chains enables you to ask the right questions quickly, anticipate bottlenecks before they occur, and avert losses and missed deliveries.
Tobias Larsson is head of supply chain at Altana AI.
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