The initial supply and demand shocks caused by the pandemic were followed by an import surge as suppliers tried to replenish inventories, which threw normal transportation operations into turmoil. In the United States, this has included a lack of freight-handling capacity at Los Angeles and Long Beach ports, overloaded U.S. intermodal rail networks, and a lack of containers. But alternatives to established logistics networks exist. It’s time for companies to take advantage of them.
Over the last three decades, companies have established wide-ranging global supply chains that have taken advantage of steadily improving scale economies in global logistics. Efficient and reliable ocean and air cargo have linked low-cost manufacturing hubs across Asia with major markets in the United States and Europe.
The disruptions in logistics networks caused by the Covid-19 pandemic have added to the woes of supply chain managers who have tended to focus narrowly on their production partners and less on their geography and the links that connect them. Around the planet, the pandemic has disrupted trade to an extraordinary degree, driving up the cost of shipping goods and adding a fresh challenge to the global economic recovery.
At the center of the storm is the shipping container, the workhorse of globalization.
Managers drove efficiency by keeping inventories lean and taking advantage of the wealth of international cargo transport options. An almost singular focus on ex-factory cost and minimizing overall landed costs drove a concentration of traffic onto a handful of trade lanes.
Managers should pay attention to geography. With many firms relocating some of their production to Southeast Asia, ocean routings via the Suez Canal and the East Coast ports have become much more competitive.
Shifting demographics should also factor into logistics network design. Six of the top 10 U.S. states in terms of numeric population growth were in the South or Southeast, and six of the top 10 counties in terms of population growth were in Texas.
The massive increase in global merchandise trade of the last two decades and the shifts in production from the West (United States and Europe) to the East (Asia, particularly China) were fueled by labor arbitrage and cost advantages, but they were powered by low-cost container shipping and air cargo.
Logistics design should be a core part of supply-chain design and planning. For many businesses, especially the small and medium-size ones, this might require improving communications between logistics managers and other parts of the supply chain or directly making managers responsible for logistics.
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