When considering the global supply chain, big-box/large retailers capture outsized attention. Yet freight forwarders know the contribution small/medium-sized enterprises (SMEs) make to the global economy. In ways often overlooked, SMEs contribute appreciably to global economic growth and vibrancy. According to McKinsey, SMEs account for 99 percent of firms and 70 percent of all jobs in developing countries, as well as contributing more than 50 percent of GDP in high-income countries. McKinsey also notes that between February 2020 and April 2021, "70 to 80 percent of SMEs across 32 countries lost between 30 and 50 percent of their revenues."
With the pandemic and its related financial and operational impediments, SMEs face considerable ongoing challenges, particularly when it comes to supply chain logistics. Freight forwarders appreciate the SME predicament. More importantly, they can help.
Drawing from their expertise and extensive practical experience, freight forwarders can provide great insights as to how SMEs can overcome some of the logistics challenges they face. Serving on the supply chain front lines, freight forwarders gain unique, comprehensive knowledge on a daily basis. A significant portion of that data comes directly from SMEs. As a result, freight forwarders hold invaluable intel on how SMEs can better utilize and navigate the supply chain now and in a post-pandemic future.
A Global Warning for SMEs
Freight forwarders report that no one overriding supply chain issue dominates the SME agenda, but rather a combination of factors. With SMEs — and much commerce in general —cost often takes precedence. SMEs see this most clearly through rate volatility.
Rates change. That's the market. But pandemic-induced supply chain disruptions have exacerbated this greatly, and the SME market approach further affects the rates they encounter.
"A lot of small/medium-sized enterprises scramble with last-minute orders, changing dates, shipping modes—all kinds of criteria," explained Apex Logistics business development manager E.J. Clyman. "And they expect the same rate quote I gave them one or two months ago. But quotes don't necessarily hold. So, they end up squeezed between the going rate and what they quoted their client. And that can eat directly into their profit."
In addition, SME planning cycles further complicate things. SMEs regularly approach freight forwarders with a series of small purchase orders spread out over time. This challenges freight forwarders to deliver consistently low rates.
Clyman also reported that SMEs often chase capacity. "They want to be treated like big-box retailers with guaranteed sailings at guaranteed prices," he said.
Unfortunately, the economic realities of volumes prohibit that. In truth, today even big-box retailers struggle with guaranteed sailings and long-term rates. SMEs also face a capacity squeeze that only looks like it will worsen.
Steamship lines are focusing even more on big-box retailers, so the amount of space for SMEs is going to shrink even further," adds Patrick Mullally, business development manager at Apex Logistics.
Additionally, financing poses another hurdle. SMEs must cover additional costs when shipping windows change, often requiring that they turn to trade finance companies. Yet, banks normally request that a logistics company subrogate its lien rights, as it holds first position with a bill of lading. Naturally, most logistics companies are not willing to do that. SMEs sometimes also request that freight forwarders extend credit term days — for example, from 30 days to 45.
Again, that's not something most freight forwarders will do.
Despite these challenges, the SME situation is not hopeless. Far from it, actually.
It's an SME World After All
There is no supply chain SME panacea, but there are strategies freight forwarders promote for SMEs to optimize supply chain use — and consequently SME bottom lines.
Strategy #1: Education. Ranging from global politics to choosing the right, niche-focused freight forwarder, education is a key differentiator. Is there a COVID lockdown in Ningbo? Does new legislation promise to resolve an LA harbor blockage? Is another vessel stuck in Suez? Does your freight forwarder specialize in Asia when you need Europe? Education promotes greater understanding and actually changes what a freight forwarder can offer. In short, better-educated SMEs tend to be more receptive to unfamiliar alternatives.
Strategy #2: Flexibility/Adaptability: In an ever-changing, pandemic-fired world, SMEs must overcome inertia-driven methodologies. Markets shift constantly and ad hoc opportunities arise and disappear. Possessing a wealth of knowledge, freight forwarders also receive new information every moment. Only through applied flexibility and adaptability can SMEs take advantage of what freight forwarders know and discover.
Strategy #3: Forecasting and Planning: Freight forwarders value forecasting as one of the single most important SME functions. While no one expects perfection, enhanced forecasting and planning helps SMEs gain longer-term perspectives and benefit from economies of scale.
Strategy #4: Proper Financing: Time really is money, particularly for SMEs. They should factor greater lead time to obtain more advantageous financing from a qualified, appropriate lender. Naturally, integrating forecasting and planning helps materially.
Strategy #5: Risk Mitigation: SMEs cannot compete head on with big-box retailers. So, freight forwarders recommend spreading out risk. For example:
- No capacity through the Port of Los Angeles? Spread volumes to alternative ports like Houston, Seattle/Tacoma, Oakland, or even inland routes.
- No ocean available? What about air or a combination of both?
Better spreading risk will help SMEs optimize their position in a big-box-retailer-dominated supply chain.
SMEs play a vital role in the global economy. Yet they're often shown the backseat when vying against large retailers. It doesn't have to be that way. By working in close partnership with skillful freight forwarders, SMEs can help establish a profound, profitable, and mutually beneficial working relationship to tackle the particular supply chain challenges they face.