SMC3 session takes a close look at how stakeholders are handling supply chain woes

A session at this week’s Jump Start ’22 conference in Atlanta addressed myriad issues and challenges facing the United States supply chain.

The session, entitled “Understanding America’s Supply Chain Woes,” featured supply chain stakeholders from three different perspectives:

Ports: Barbara Melvin, COO, South Carolina Ports Authority (SCPA);

Shipping: Linda Fonkoue, Global Supply Base Manager, Logistics, Deere and Company;

Motor Freight: Charlie Prickett, President & COO, AAA Cooper Transportation. The session was moderated by Logistics Management.

Peak Season

A look back at the 2021 Peak Season was a focus of the session. AAA Cooper’s Prickett said that things were a little different, in that consumers were buying goods earlier than normal, in an effort to make sure their orders were delivered in time and to counter supply chain issues.

“The biggest challenge was Covid and the impact it had on labor and availability, not only for our company but also for our customers often having shipping issues, which created a bit of disruption,” he said. “There were also some late deliveries on new assets and new equipment, with some trailer detention being a little bit problematic, but we worked through it and had a good [peak season].”

Deere’s Fonkoue observed that early last spring her company realized the number of carriers in its supply base was not going to be enough to support its Peak Season needs, which saw her team proactively trying to lock in new capacity while also negotiating and working with their current partners to secure additional capacity from them, in addition to their existing commitments.

From a port perspective, SCPA’s Melvin said her port has been operating at maximum level capacity, or Peak Season-like conditions, going back at least 13 months.

“It puts a strain on assets, a strain on capital programs, and on your people,” she said. “You need to keep their thoughts and hopes up and make sure they are getting rest days, too. I would truly say that the consumer has changed definition of peak.”

Omicron

The impact of the Omicron variant on supply chain operations and processes was another key theme of this session.

“Clearly, Omicron has created a unique pattern similar to what we have seen in the past,” said Prickett. “There have been more frequent outages of employees and disruptions to labor, which created a challenging environment for planning resources, even though the process and equipment was there. The positive thing is that Omicron has been less impactful, in terms of length of [employee] time out and the mitigations we have been able to deploy.”

He added that Omicron requires carriers to be closely working with customers and to understand customers have the same challenges as carriers. As an example, he said a AAA Cooper truck may show up to a customer’s facility for a pickup, but a shipment may not be ready, which requires AAA Cooper to work more deliberately with customers to coordinate things like pick up availability.

“We have had to mitigate through that in a way which is certainly not the norm,” he said.

For Deere, Fonkoue said that a large number of its employees have been home-based over the course of the pandemic, with Omicron not presenting any entirely new challenges compared to previous variants.

“Where it did impact us was with our carriers being short-staffed and sometimes not being able to pick up freight on time, due to it being very contagious, with some terminals needing to be closed,” she said. “From a shipper perspective, it created some constraints for us, but it looks like things are getting better, with some of our carriers able to use replacement drivers and terminal workers for freight pickup and delivery into the Deere network.”

At the outset of the pandemic, SCPA’s Melvin noted it did not present many initial challenges.

“If you think about how a port works, our operators are by themselves with machines, and we, in our office, did not go home,” she said. “We have a very strong culture and our support staff is there for our operators that are working. So, we made sure we stayed healthy. The holidays presented more challenges than for what we saw for two years. The first two weeks of this year, with Omicron and people not traveling, were more challenging for us, but by the third week we were overcoming that. It was the same for our maritime partners, longshoremen, and our motor carriers all seeing the same effects, but we are on the other side of that now.”

Inflation

With inflation currently at 40-year highs, the panelists were direct in how it has impacted things like logistics processes, planning, and procurement efforts.

Prickett noted that the way in which inflation affects assets and related materials are significant.

“Our fleet is relatively new so we are not under a lot of pressure, in terms of replenishment and replacement…so the question really is what is next,” he said. “Our main concern right now is making sure we have what we need for growth and for replenishment, as we retire equipment. For supplies and materials, we really went back through and justified everything we needed. The pandemic, with all of its ills, required us to do some of that prior to having an inflation point. As part of Knight-Swift, we have worked to broaden out our purchasing and procurement leverage and have certainly taken advantage of that as well.”

Fonkoue said that amid rising inflation, from a shippers’ perspective, Deere has had carrier partners come in and ask for rate increases needed for equipment and driver-related expenses. That has led to negotiations and discussions with carrier partners, with the understanding that these inflationary challenges are impacting shippers and carriers alike.

For ports, Melvin explained that ports are such a long cycle business, with the expectation of seeing multiple economic cycles, as SCPA moves through its capital planning efforts.

“In certain spots, we have seen the impact of inflation,” she said. “We recently bought chassis at the top of the market. In general, the immediate challenges would be the same as you see in most of our industry. If ports are doing their job, they are planning for multiple economic cycles and planning for some recessions and inflation.

The ongoing supply chain crunch

Each panelist was asked for their respective opinion as to how long the supply chain will be up against the current confluence of challenging market conditions.

Fonkoue said that really is the “million-dollar question,” as nobody is 100% certain as to when the pandemic is going to end, coupled with the related supply challenges, too.

“What we can do is continue to better processes to better ourselves and focus on better collaboration with supply chain partners and improve our current processes to ensure we continue to change and adapt as time goes on,” she said.

Melvin said that when U.S consumer demand for imports drops below 2 million TEU per month [at SCPA], a figure which she said represents maximum capacity for U.S. import volumes, there may be some normalcy.

“We have consistently been at 2.5 million TEU for the last 11 months, so I would say when the consumer really regulates that demand below or at 2 million TEU per month, we will start to see some relief from the supply chain challenges of today,” she said. “And ocean carriers have started ordering ships again. There is a significant amount of capacity, or TEU, on order. We don’t think things will revert back to pricing wars to manage capacity. I think ocean carriers have really learned how to manage capacity, and there have not been the same behaviors as before. They will lay up ships and cancel sailings if they need to. I do believe, again, it is going to all be driven by U.S. consumers.”

Prickett agreed with Melvin, in that consumers will drive what happens.

“When you see what is happening in warehouses, with the current inventory levels, and durable legers, it is not a perfect process, but we will see if we can get it, which is not a good sign for GDP growth,” he said. “But what will happen is…warehouses will start to fill, as this mobilizes. If you think about when things were shut down, a lot of movement was backlogged and drained inventory, with replenishment a problem. That takes a while to refill. That is a very significant change from what is the true capacity of the ports on the import side. I think we are in this disruptive area for a couple of years, and I don’t think it is as acute as it has been. This industry has a way of figuring things out, though.”