Two Keys for Securing Supply Chains in a Post-Hanjin World
Is your supply chain strong enough to withstand a catastrophe? For one apparel retailer, the answer came during the collapse of beleaguered freight carrier Hanjin Shipping Co. last year. The massive carrier failure stranded $14 billion in goods on Hanjin vessels denied entry to ports worldwide, according to The Wall Street Journal, creating chaos in the supply chains of countless businesses. The shipments in question for this retailer were needed to expand its overall North American inventory in advance of the 2016 holiday shopping season.
With Hanjin's shipping services now unavailable, the company scrambled to find an alternative. Hanjin had been the only carrier handling the retailer's over-ocean container shipments, but getting capacity quickly at affordable rates for future shipments seemed nearly impossible to achieve while still hitting its shipping targets. Fortunately, the business was able to get the shipments back on track, all at the same rate Hanjin had promised through its logistics solutions provider. While all ended well, this eleventh-hour rescue was not without cost, and underscores the importance of solid logistics processes; innovative, intelligent systems; and – perhaps most important – trusted partner relationships when unexpected events happen, an increasingly common possibility in today's uncertain landscape.
Continued risks lie ahead
The fall of Hanjin, once the world's seventh-largest carrier, has given importers and exporters a wakeup call about the vulnerability of both the freight industry and their own logistics operations. As carriers continue to struggle, another big bankruptcy could be around the corner, potentially leaving businesses once again working furiously to develop last-minute contingency plans.
Overcapacity and sluggish demand have combined to create a perfect storm for steam ship line carriers, hurting profitability and raising questions about the industry's future. Carrier investments in bigger, more efficient ships have reduced slot costs and caused freight rates to fall, while slower-than-expected demand since the recession means much of that new container capacity has gone unused. According to Boston Consulting Group, supply outstripped demand for container space by 7 percent in 2015, and that figure is projected to rise anywhere from 8.2 percent to 13.8 percent by 2020. Balance sheets are suffering as a result, with the container shipping market losing an estimated $5 billion in 2016, according to Drewry Shipping Consultants.
And uncertainty in the freight shipping industry is just one of the issues with the potential to wreak havoc on global supply chains. From fires and earthquakes to cargo theft and supplier insolvency, risks are growing alongside supply chain complexity. In 2015, supply chain disruptions cost businesses around the world $56 billion, the British Standard Institute's Global Supply Chain Intelligence Report found.
Taking a proactive approach
Put yourself in the apparel retailer's place: What would you do if your biggest carrier contract vanished overnight, right before the all-important holiday season? Is your supply chain resilient enough to meet obligations to your customers and partners? In today's on-demand economy, failing to provide fast, accurate delivery can directly affect future business and have lasting repercussions. A study of more than 800 enterprise businesses, which focused on controllable disruptions like ordering too few products to meet demand, found company sales growth slowed by an average of 7 percent in the year after a major incident.
By establishing the right processes, technology and network of partners, your company can gain a competitive advantage in the face of a supply chain disruption. Here are two key areas to research:
- Technology. Supply chain visibility is never more important than when something goes wrong. But while shippers may have more technology, systems and resources at their disposal than ever before, end-to-end visibility remains elusive. An increasing number of businesses is using multiple logistics providers to mitigate risks and costs but often must toggle across multiple platforms to see each forwarder's information, making it difficult to get a complete picture of where their freight really is throughout the supply chain.
A centralized technology platform, with a booking system that can show you the status of every provider's shipments, eliminates visibility issues that traditionally come with a multi-provider approach. That means if a container of goods is delayed on its way to your warehouse in California, you can see where you have similar inventory and arrange to get it there, regardless of which freight provider is handling it. Advanced purchase order management technology — not just track and trace — can help keep tabs on and control your freight each step of the way, so you can develop a backup plan quickly in the event of a disaster. Visibility is the name of the game.
- Provider partnerships. Will your logistics provider go the extra mile for you during uncertain times? When an unexpected event forces you to find last-minute capacity with a new carrier, a provider with the agility to scale quickly and a broad network to negotiate the best solution for your needs can stop supply chain issues from spiraling out of control.
That was the case for the apparel retailer mentioned above, whose freight was stranded on Hanjin's ships. The retailer's freight forwarder used its long-standing relationships and reputation to find another carrier willing to honor its original rate with Hanjin, enabling the business to move container shipments around the globe once more. Without that support, the business could have suffered a cataclysmic blow to its logistics operations, putting its financial viability and customer relationships at risk. While the right technology solution provides a solid foundation for your supply chain, it's even more powerful coupled with a capable and trusted partner network.
Will another carrier go under in 2017? It may be too soon to tell, but it's not too early to prepare. Start now to make sure you have the right partners, process and technology in place. Gaining visibility into where your freight is and ensuring you're able to rescue it if needed can put your business ahead of the curve if – or when – disaster strikes.
Jim Briles is CEO of American Global Logistics, a shipping solutions and supply chain management company.