Five International Supply Chain Trends for 2015
As any supply chain professional will tell you, our industry is in a state of constant evolution -- an endless process of both major tweaks and smaller fine-tuning. These changes can catch businesses of all kinds off guard, and often impact both large and small companies simultaneously.
That was certainly the case in 2014 with the slowdown at U.S. West Coast ports. The situation forced shippers, forwarders and others to reevaluate supply chains and make critical modifications. With an agreement bringing this long-running drama to a conclusion, here are five topics and trends that could shape the rest of the year.
1. The Internet of Things Gets Real
It's been a long time since the industry transitioned from the clipboard to the computer, and now technology is taking shape that promises not only to improve efficiency, but also to enable new functions and processes. Yet, even though a recent issue of the Harvard Business Review reports that with the ascent of the Internet of Things (IoT) we are moving quickly toward devices embedded in many if not most products, it's clear that the IoT is still in its infancy for the transportation industry.
We see 2015 as the year that shippers and their supply chain partners get a clearer, more realistic picture of what the IoT will mean for them. The potential benefits are huge, but so will be the task of activating and taking advantage of it -- utilizing public or private clouds to collect data, getting all the players in a supply chain on board, and making valuable sense of the information.
Sound familiar? It's the same challenge that's been facing the industry since last year's hot new trend -- big data -- took center stage. Shippers, forwarders and carriers will indeed utilize more big data and rely on cloud services in 2015 to assess and modify supply chains for peak performance. Yan Cui, UTi Senior Consultant of Supply Chain Design and Information, outlined in his recent white paper on big data that opportunity identification, the availability of data-driven business information, key data utilization, and information-based decision-making will be the key factors in successful network designs that create new sources of value.
For example, according to a recent news report, Scania trucks sold in Europe, Africa and Asia now incorporate IoT technology connecting the vehicles to back-office maintenance systems and Scania's workshops. The technology enables everything from real-time engine diagnostics to enhanced driver coaching.
Gartner predicts that the IoT will reach 26 billion devices by 2020. While we are moving rapidly toward a world in which nearly every item shipped -- and the systems, tools and even people used to process those shipments -- will be connected, getting there will require a lot of planning and work. When you consider that the IoT has actually been around for 15 years, it's not a stretch to predict that 2015 may well be the year we see it become a significant force in the supply chain industry.
2. Visibility Extends Across Partners
Like the IoT, in 2015 big data and other new technologies will make major progress in meeting supply chain needs -- visibility above all. Indeed, recent surveys show that visibility remains among the most pressing supply chain issues for companies. We believe the key challenge is integrating the visibility standards of multiple carriers into a single platform and getting the most value from big data in the supply chain. In particular, there is a growing need to integrate visibility of a shipment as it moves from one supply chain provider to the next.
That visibility can even extend beyond the immediate geographical data and production status of a shipment. For example, visibility is critical in meeting cold chain and product authenticity requirements. The pharmaceutical and food industries rely on the seamless handling of cargo to preserve product integrity and security, and to facilitate recalls should it be compromised.
Imagine the peace of mind -- and the competitive edge -- that all types of shippers would experience if, at any given moment, they could access practically anything they wanted to know about their products, such as current and historical geospatial and movement, temperature and humidity, product freshness and integrity data. We expect big leaps forward in this space in 2015, with the accompanying opportunities to run projections and scenarios that enable improved production and distribution efficiency across increasingly complex fulfilment channels. Likewise, taking full advantage of existing tools such as a robust order management system will also pay dividends.
3. Infrastructure Problems Persist Globally
While most of the world blamed the labor-management relationship for service issues at U.S. West Coast ports, the real culprit was the lack of infrastructure and equipment needed to handle the new realities of ocean shipping. Labor unions exposed these vulnerabilities by slowing the process, but even at full production, serious delays still would have occurred for several underlying reasons.
The creation of shipping alliances saves billions of dollars in operating costs, and eases the overcapacity problems on some of the main routes, such as the shipping lanes between Asia and Europe. But they can also create confusion, such as arriving ships handling multiple alliance partners within one port handler. Problems also arise with truckers trying to figure out which port handler has the freight they are to recover.
Another issue is massive ships dropping enormous volumes of containers at one time at a port handler site designed for smaller ships. When larger, 12,000-plus-TEU ships are dropping enormous loads, they contribute to disarray on docks designed for 4,000- to 6,000-TEU ships. Most recently, we've seen the Globe, one of the world's largest ships, dock in Hamburg and Rotterdam. This 19,100-TEU Chinese container ship will move products between Asia and Europe. And soon, even larger ships may arrive. Lloyd's Register predicted last year that we may soon see 24,000-TEU ships coming online. Many ports around the world are simply incapable of handling such large batches of containers efficiently.
Compounding the problem in the United States is the lack of chassis availability. A full-blown shortage has developed with the privatization of chassis. Without a gray box system for exchanging chassis among the new chassis owners, some arriving ships encounter an insufficient amount of chassis to move the offloaded freight, while other ships are greeted with an abundance of chassis.
In 2015, we see the underlying capacity problems at ocean ports around the world continuing to pose a significant obstacle. Labor disputes will only add fuel to the fire.
4. Business Continuity Planning Goes Critical
Managing supply chain risks and disruption has been a popular topic in recent years, and we expect it to become even more important in 2015. But added to the traditional challenges of labor problems, natural disasters and supply chain production bottlenecks are some new threats.
One key challenge is cybercrime. The digital attack on Sony Pictures not only exposed confidential business records, personnel information and proprietary content, the attackers disrupted the company's business operations, specifically the release of several films. As your company's supply chain become more technology-dependent and more integrated with vendors and business partners, your security both depends on -- and determines -- the security of those with whom you do business.
Another challenge is carrier capacity, with carriers being defined broadly beyond traditional air and ocean lines. The situation at U.S. West Coast ports reminded everyone of the need for robust risk management and business continuity plans. Space on ships may not be the issue, but the ability of ports, truckers and rail lines to clear cargo often is equally important.
For example, in the United States and elsewhere, inland delays are becoming more frequent as the shortage of truck drivers persists. As illustrated in a recent Journal of Commerce article, the truckers themselves say that the biggest problem is keeping up with demand. There is a surge in heavy-demand truck orders, but there is a continued struggle to find drivers, especially those drivers to be hired by LTL carriers.
5. Lower Fuel Costs Add a Wrinkle to Supply Chain Planning
There has been much debate about whether the cons may outweigh the pros when it comes to falling fuel prices. With oil likely to remain relatively inexpensive for much of this year, the obvious outcome is a reduction in fuel surcharges in the short term, but will the lower prices be sustained? And what about the impact to the global economy overall? As long as oil inventories continue to build, it will keep prices low until higher-cost producers are forced to discontinue production.
While the near-shoring trend continues to grow in importance, offshoring remains a viable alternative, and for supply chains, cheaper fuel is likely to tilt the value equation yet again. Despite lackluster global economic growth and additional air capacity coming online in 2015, low fuel prices are likely to boost demand and create a relatively tight airfreight market this year.
Shippers will need to remain flexible in 2015 and to partner closely with their supply chain providers to develop a strong plan that enables taking advantage of opportunities to save while at the same time giving them options in the event of disruptions.
2015: Expect the Unexpected
We believe that shippers and their partners will continue to streamline operations in 2015, with new technologies playing a key role in gaining efficiencies and shoring up potential areas of risk. With strong business continuity plans in place, better-informed manufacturing location decisions can be made to address more complex distribution channel requirements and to capitalize on savings opportunities such as lower fuel costs.
But, as always in this ever-changing industry, the most valuable piece of advice for 2015 simply may be to expect the unexpected. To review some of the challenges and opportunities that lie ahead for your supply chain, and to help prepare for the ones that can't be foreseen, contact your local UTi office or account representative.