Risk Management

While firms today might be more worried about the possibility of inventory pile-ups than product scarcity, the age of port congestion, empty shelves and toilet paper shortages is not far behind us. 

Risks beyond the pandemic abound — political, economic, environmental, financial and more.

“If 2023 was the year of ‘what’ in terms of what the problem is or what the challenge is, in 2024 we’re going to start getting into the how’s and then actually doing it,” said Simon Geale, executive vice president at procurement services firm Proxima. “I think we’re going to see quite a lot of progress on localization, reshoring and resilience in the early part of 2024.”

Despite the scars of the pandemic, the sharp swing from high demand and product scarcity to overabundance of inventory and weak spending have renewed longstanding priorities around cost and profit margins. 

“Currently, there is a strong focus on cost management and cost insulation to protect profitability. Most companies try to avoid a holistic transformation of their supply chains,” said Philipp Oemler, a managing director with FTI Consulting. 

At the same time, Oemler thinks attitudes have changed in organizations since the pandemic brought widespread disruptions to supply chains. 

“From my point of view, there is a mind shift,” Oemler said, noting that since the pandemic “people came to the conclusion that the supply chain is one of their strategic forces and that they need to secure it. The pendulum is going more to the direction of cost, but still there is still a mindset of resilience.” 

And there is cause for a resilience-mentality. Circumstances and systemic challenges continued to put pressure on supplies of some key commodities, while other hard-to-predict risks could create shortages no one can foresee with perfect accuracy today. 

Here is a look at where shortages might strike in 2024:

Pharmaceuticals and medical supplies

 

Shortages of certain medicines continued to plague hospitals and providers through 2023, and many of the underlying dynamics have not been resolved.

The Food & Drug administration still lists shortages for some cancer treatments such as carboplatin and cisplatin — which have caused astronomical price spikes. Those are in addition to dozens of other medicines in short supply.

Stocks of some medical machinery have also been under strain. Supply disruptions for both devices and treatments have caused surgical cases to be rescheduled, postponed or canceled, according to a 2023 survey by the patient safety nonprofit ECRI and the Institute for Safe Medication Practices. 

In the medical device space, many of the supply chain issues are upstream from manufacturers.

“When I’m working with medical device companies — with nine out of 10 — the question is: ‘How do I increase the stability of supply for my suppliers,’” said Rick van der Vegte,  a senior managing director in FTI’s life science practice. “You cannot switch suppliers that easily and quickly in the medical device space.”

Supply disruptions can be exacerbated by the long lead times in manufacturing supply chains for both medicines and devices, van der Vegte noted. Mitigating those risks also takes time. Finding and onboarding another qualified supplier can take at least a year, he added.

Given the time it takes to bring in new suppliers, assessing and addressing risk early can potentially head off disruptions. Van der Vegte pointed to a European medical device company he worked with to conduct a full risk assessment on its supply. 

“We found out that most of these risks could be eliminated by either changing contracts or by identifying alternative suppliers,” he said. 

Food

War and weather have put the broader food system on alert, where it may remain for the foreseeable future. 

“I don’t think it’s possible to go into any year at the moment without having food supply at the top of your risk register,” Geale said. 

Analytics firm Everstream listed agricultural commodity shortages as one of its top supply chain risks in 2024, citing in part production halts in 2023 during a turbulent year for crops.

2023 has brought spiking cocoa and sugar prices, the latter of which spurred a federal government watchdog agency to push for policy changes. Heat and drought in Europe created shortages of olive oil that drove prices up globally.

Going into 2023, concerns swirled around potential shortages as war raged between two large grain-producing countries — Ukraine and Russia. Ukraine’s exports fell in 2023, and farmers in the country have abandoned millions of acres of land. So far, though, the worst has not come to pass. 

“While lower exports of agricultural commodities from Ukraine continue to contribute to tighter and more volatile global markets, trends in Ukrainian exports are becoming less and less important to overall expectations for global commodity markets, as supply chains and the global market have largely adapted,” the Famine Early Warning Systems Network said in an October analysis. 

“Rather, greater concern exists for the impacts of future potential shocks,” the organization added, pointing to the potential of war in the Middle East.

Battery minerals

As countries and businesses scramble to revamp their energy use, companies are competing for key materials used to make batteries for electric vehicles and other green technologies. 

Between 2017 and 2022, global demand for lithium tripled, while demand for cobalt jumped 70% and nickel demand climbed by 40%, according to a market review from the International Energy Agency. Prices, meanwhile, continue to “remain well above historical averages.”

Concerns continue around whether the supply of those and other minerals will be able to keep up with increasing demand. Geographical concentration of mining and refining adds to the tension over battery materials. In response, the Biden administration has put money and energy behind developing a domestic supply chain for minerals such as lithium.

Major private sector players have also invested in mining and refining. In 2023, the fossil fuel giant Exxon Mobil said it was looking to break into the EV battery lithium supply market, starting with a drilling site and processing plant in southwest Arkansas.

Manufacturers, meanwhile, are racing to secure their own supply. Ford has signed multiple long-term lithium contracts. Fellow automaker GM has invested in a lithium producer and plans to invest another $650 million with a Canada-based lithium mining specialist to develop a Nevada lithium mine. The list goes on, and for other minerals as well.

Climate-driven shortages

The climate is changing, with extreme weather events happening with greater frequency and ferocity. That will only worsen with time, especially if humanity fails to speedily reduce carbon emissions. And impacts on supply chains will increase as well. 

Any extreme weather event can slow or even halt the production or transport of supplies. Last summer, for example, a tornado damaged a Pfizer pharmaceutical plant in North Carolina, leading to a temporary closure.  The closure sparked concerns about supply shortages. Months passed before the factory could return to full-capacity. 

Elsewhere in the world, protracted droughts slowed major shipping channels, including the Panama Canal and Mississippi River. Droughts and heat waves also hit olive oil production in Spain and cocoa harvests. Extreme weather in India caused shortages and massive price spikes of tomatoes, a dietary staple in the country. 

Everstream, which listed extreme weather disruptions as its top supply chain risk for 2023, pointed to shipping delays caused by wildfires in Canada in 2023 as well as heavy rains and flooding in the Southwest. 

“As we saw last year, particularly in India, a bad harvest, or climate disruption, and a significant proportion of the world’s [food] supply gets out of kilter,” Geale said.

These are just previews of challenges to come. At a Senate hearing in October, experts pointed to the effects climate disruption could have on ports and commodity supplies such those for semiconductors, many of which are produced in Taiwan — where typhoons could have an increasing impact on manufacturing.     

Geopolitical-driven shortages

Procurement and supply chain teams are also watching political developments as they make plans for 2024 and beyond. 

Since the China tariffs first instituted by the Trump administration, imports from the country have decreased significantly and firms have looked to diversify their sourcing. Republican candidates have voiced support for the idea of ending China’s permanent normal trade relations status, which would give rise to yet heftier tariff rates on imports. The National Retail Federation took the proposals seriously enough to commission a study on the potential impact, which found such a policy move would lead to $31 billion in added costs for consumers. 

Recent wars have also given rise to concerns about shortages, with increases in fuel costs and grain prices following Russia’s invasion of Ukraine, and war in the Middle East slowing ocean transport and creating jitters over fertilizer supplies.

Oemler also noted the possibility of conflict around Taiwan — another major supply chain risk looming over this year highlighted by Everstream — as potentially having a major impact on global trade and production. Firms are already thinking about the potential for conflict as they make sourcing decisions. 

“They’re investing more in diversification of their supplier base and also on long-term agreements,” he said.

Labor clashes, geopolitical risks and freight supply-demand misalignment are prompting logistics managers to reevaluate their supply chain strategies in 2024.

Transportation modes like sea and air shipping continue to be plagued by the Red Sea crisis, albeit in different ways. Meanwhile, as labor tensions prevail across several logistics sectors, logistics managers may need to remain flexible.

While conversing with several experts on the risks ahead for the year, Supply Chain Dive rounded up eight logistics trends to watch in 2024.

1. Red Sea crisis threatens rates

The ongoing situation in the Red Sea poses a challenge for ocean freight — with shipper concerns centering on rates and changes in vessel schedules.

"While we're witnessing significant increases in indices and freight rates on specific routes, there's a concern that carriers might leverage this disruption to hike overall sea freight pricing," Patrick Lepperhoff, principal at Inverto, told Supply Chain Dive.

Since the vessel attacks along the Red Sea began, ocean shipping rates have gone up significantly and several carriers have implemented additional surcharges. Some shippers like Ikea have already reported delays as they face constraints for certain products. 

Lepperhoff said even if the situation in the Red Sea returns to normal, shipping companies may face difficulties for months.

The Suez Canal blockage in 2021 lasted about six days and disrupted schedules of the ports in the Mediterranean and North Sea for months, he added. "This crisis has already lasted longer than that."

2. Panama Canal restrictions add complexity

While drought restrictions at the Panama Canal continue, cargo diversions are happening and increasing the chances of delays.

Vessels traveling through the major waterway have been limited to 24 slots per day, according to a Dec. 15 advisory from the canal. The allotment is down from the pre-drought capacity of more than 30 ship transits per day. By February, authorities expect transit capacity will fall to 18 slots per day.

Shippers' options have been complicated by the crisis in the Red Sea. Companies looking to import cargo from Asia to the U.S. East Coast may have looked to the Suez Canal as an alternative to the Panama Canal. But now that alternative is risky, too, after attacks on vessels traveling to the shipping channel through the Red Sea led major carriers to reroute ships or halt transit. 

"Without access to the canals, customers face 30%-40% longer sailing times and higher costs to trade with Asia," according to a Jan. 24 report from Moody's Investors Service.

3. East Coast port labor talks loom large

Labor negotiations also continue to pose a risk for ocean shipping due to the pending East and Gulf Coast port labor talks.

The International Longshoremen's Association labor contract with the United States Maritime Alliance is set to expire on Sept. 30. In a statement from the ILA, members were told to “prepare for the possibility of a coast-wide strike in October 2024.”

If a strike does occur, it could result in port congestion, Brian Whitlock, senior research director at Gartner, told Supply Chain Dive. It could also cause East and Gulf Coast ports to lose volume gained during the West Coast labor negotiations.

“So I think [labor actions are] going to continue to be high on the list of things that will impact not only ocean shippers, but other modes as well,” Whitlock said.

4. West Coast ports may experience heightened traffic

Drought-related restrictions in the Panama Canal, the duration of the Red Sea crisis, and East and Gulf Coast port labor uncertainty are among the reasons many analysts suspect U.S. West Coast ports should brace for a surge in volume in 2024 — and with it, potential congestion.

West Coast ports have already seen some volume gains as shippers reroute cargo. Port of Los Angeles Executive Director Gene Seroka said on Jan. 10 that West Coast market share is up 3% compared to East and Gulf Coast ports.

As volumes shift, intermodal consultant Lawrence Gross told Supply Chain Dive he would not be surprised if intermodal volumes moving through truck and rail also surged. However, heightened container traffic could also lead to some congestion, though capacity among trucking companies is plentiful and chassis have been added in anticipation of growth.

However, West Coast ports have been expecting cargo to rebound in 2024 and are preparing accordingly.

"Make no mistake about it — cargo has come back to the West Coast and we are not letting it go," Port of Long Beach CEO Mario Cordero said Jan. 17 at the State of the Port 2024 event.

5. Overcapacity remains a problem for trucking companies

The trucking industry was contracting for much of 2023, with large and small carriers alike leaving the market due to bankruptcy, closure or acquisition.

Some experts expect the trend to continue in 2024. A high rate of transportation employment suggests there may still be too many drivers and companies competing for business during a soft freight market cycle, Jonathan Phares, assistant professor of supply chain management at Iowa State University, wrote in an email to Supply Chain Dive. 

This bodes well for shippers, he said. Ample capacity may translate to spot and contract rates remaining flat.

While recent action from the Federal Reserve appears to have curbed inflation, it has not cooled manufacturing employment, Phares said. However, if interest rates remain high and industrial production cools, that could lead to reduced trucking demand and capacity.

Should this occur, Phares said shippers may see spot rates fall until demand exceeds trucking supply. Though if the Federal Reserve reduces rates and manufacturing production remains high, shippers may continue seeing low spot rates with plentiful capacity.

6. Labor clashes a risk for parcel delivery networks

After contentious contract negotiations between UPS and the International Brotherhood of Teamsters last summer, this year is poised to see more clashes between management and labor in the parcel delivery sector.

FedEx Express and the union representing its pilots are still negotiating for a new contract agreement after members rejected a tentative deal in July. Mechanics at the FedEx unit are in the midst of an organizing drive to join the Teamsters. The labor union is also continuing its campaign to organize the workers that power Amazon’s massive logistics network, highlighting an unfair labor practice strike by delivery drivers at an Amazon contractor that ratified a union contract in 2023.

"Amazon better pay attention because there’s more to come," Teamsters General President Sean O'Brien said in December 2023..

Whether these battles cascade into operational disruptions remains to be seen. But even the threat of a strike is enough to send shippers scurrying to alternative carriers. FedEx snagged 400,000 packages' worth of average daily volume from UPS due to the latter's strike risk, EVP and Chief Customer Officer Brie Carere said in a December earnings call.

"We are tracking all accounts that … we won, specifically because of their concerns on the labor negotiations," Carere said. "The vast majority of those had an early termination clause. And to my knowledge, we have not lost a single one of those accounts."

7. Air forwarders eye growing e-commerce activity

The horizon remains hazy for the air cargo market, even as last year's rapid decline in volumes leveled out in recent months.

Some anticipate 2024 returning to classic seasonality, albeit muted. While releasing Xeneta’s 2024 Air Outlook, Niall van de Wouw, chief airfreight officer at Xeneta’s Clive Data Services, noted that “2024 could be an opportunity for shippers to catch their breath after the volatility of the past few years."

But just because turbulence may have subsided for the air cargo industry doesn’t mean there aren’t potential risks to watch out for.

“The biggest challenge will be capacity and the impact of the e-commerce players — most notably Shein, Temu, and Tik-Tok,” Marc Schlossberg, EVP of air freight at forwarder Unique Logistics, told Supply Chain Dive in an email. “Their appetite for capacity and willingness to pay any price to secure is pushing the traditional air freight shippers to the side. During the last 90 days of peak, e-commerce demand was peaking at a sustained 10,000 tons per day.”

Schlossberg further noted that e-commerce has a growth forecast of 20% to 30%, with these companies absorbing 30% or more of global capacity. Meanwhile, with technology running on a three-to-four year cycle and many upgrading their home offices during the pandemic, consumers may soon be looking to update their tech equipment.

“If a resurgent high tech market meets head on with the rising behemoths of e-commerce, things can get ugly quickly,” the EVP said.

8. Forwarders wary of geopolitical risk

Schlossberg added that ongoing geopolitical risks — like wars in the Middle East and Ukraine — make the market less predictable, and therefore more challenging to advise customers.

Trends like growing strike activity and U.S.-Mexico border congestion due to developing nearshoring activity are also on the list of possible market risks to keep an eye on, Mike Short, president of global forwarding at C.H. Robinson, told Supply Chain Dive.

While the air cargo market may lay at the mercy of e-commerce demand, geopolitical risks and other uncontrollable factors, shippers can still position themselves for success.

Schlossberg recommended hard block BSA and charter capacity, sea-air and air-sea consolidations and other charter products as possible mitigation measures for unprecedented disruptions.

Meanwhile, Short said to “focus on the events that require us to change the plan versus the plan itself.” 

“Building in agility and developing contingency plans is really where we recommend shippers focus for 2024 planning,” he said. “We can’t predict the future, but we know that resiliency is key to keeping goods moving when planned or unplanned disruption occurs.”

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Dive Brief:

• May spot prices for ocean shipments from Asia to North America are approaching $5,000 per 40-foot equivalent unit, Freightos reported at the end of May, as Red Sea conflicts and labor uncertainty at East Coast ports affect market dynamics.
• Ocean rates from Asia to the U.S. West Coast rose 13% week over week to $4,917 per FEU, as of May 28, surging 70% from April’s lowest rate of $2,911 per FEU.
• Even higher, shipping prices from Asia to the U.S. East Coast grew 18% week over week to $6,323 per FEU. However, the rates remain lower then February’s high levels, which reached $6,709 per FEU.

Dive Insight:

Shippers may face months of elevated rates and increased delays ahead of peak season if higher demand and restricted capacity continues, Freightos said. 

As of May 29, China to U.S. West Coast rates are higher than they were in the beginning of 2024 at $4,312 per FEU, Eytan Buchman, chief marketing officer at Freightos, said in a LinkedIn post. Spot rates in January averaged about $2,713 per FEU.

Shippers are moving some cargo to the West Coast ahead of looming labor negotiations at East and Gulf Coast ports. Meanwhile, Red Sea still poses ongoing logistics risks leading to diverted cargo around the Cape of Good Hope and adding transit days.

Port congestion in Asia could further pressure rates. “Berthing delays of up to a week are currently being experienced at the Southeast Asian port,” with Shanghai and Qingdao ports also witnessing a huge build-up of container ships, according to Westbound Logistics Services.

Earlier in 2024, a rise in imports from China fueled gains from the Port of Los Angeles and Long Beach.

Meanwhile, with heightened consumer spending, demand is not expected to slow down any time soon, as cargo volumes at the U.S.’ top 12 ports are forecasted to reach over 2 million TEUs through October 2024.

“This is essentially pandemic-level disruptions we are now seeing in the market as it comes to the sustained pace of increases over 3 weeks. It is only during the pandemic we have seen similar extreme increases over a 3-week period,” Lars Jensen, CEO and partner at Vespucci Maritime, said in a LinkedIn post.

During the pandemic, congestion at ports along with empty equipment shortages in Asia prompted rates to surge from China and East Asia to both East and West Coast service lanes. Ocean rates continued to rise throughout 2020 as conditions worsened.

On the other hand, Freightos said that the scale of disruptions and price spikes could be less severe than those impacts seen during the pandemic, as volumes are increasing — not surging this time around. Newly developed strategies may also help ports navigate congestion and other challenges, including off-port container yards.

“What many hoped would be an easy and shipper-controlled year has sharply turned once again to a year of uncertainty and disruption,” Stephanie Loomis, head of ocean freight of the Americas for Rhenus Logistics, said in a LinkedIn post.

Standing within view of the collapsed Francis Scott Key Bridge in Baltimore in March, Transportation Secretary Pete Buttigieg said the Biden administration’s freight initiatives aided supply chains’ response to the crisis.

Although Buttigieg did not mention the Department of Transportation’s Freight Logistics Optimization Works (FLOW) program by name, he alluded to it.

During his remarks, he touted the use of “data partnerships that did not exist prior to 2021 to monitor changing container volumes along the East Coast and help supply chain actors adapt.”

In addition to being a horrific tragedy and an economic gut punch for the port and city of Baltimore, the bridge collapse represented one of the digital platform’s first major tests.

FLOW’s goal is to improve supply chain visibility by sourcing data from its 75 members and sharing it among all of them.

Officials at C.H. Robinson Worldwide, ITS Logistics, Home Depot and IMC Companies, four of the program’s members, shared insights on its uses in a time of crisis.

C.H. Robinson was able to monitor re-bookings

While FLOW is still developing and the Port of Baltimore is not a member, the program relayed useful information and showed potential pain points amid disruption caused by the Baltimore bridge collapse, members said.

The ports of New York and New Jersey and Georgia are the only East Coast ports involved in FLOW, but “that’s a start,” said Jenna Kuehn, C.H. Robinson’s director of inland product and global forwarding. 

“Being part of FLOW allowed us to see there was limited impact to containerized freight into Savannah and a slight uptick into New York/New Jersey,” Kuehn said in an email. “It also showed that chassis availability and terminal space weren’t obstacles to rerouting Baltimore freight.”

The bridge collapse required all ocean shipments into and out of Baltimore to be rescheduled, and the platform provided members forward-looking data on bookings as far as 60 days ahead, Kuehn said.

“The hope was that we could collectively see where those re-bookings were gravitating to,” Kuehn said. “Before we sent our customers’ cargo there, that would help ensure those ports had enough equipment, had enough appointments and were staffed accordingly.”

ITS Logistics employed data to deploy assets

The Baltimore bridge collapse provided a use case for how ITS Logistics and other program members can put each other’s data to use in real time, ITS Logistics SVP Adam Angle said in an interview.

“Once the incident happened, we were able to go in and assess where chassis and other assets and equipment [were] within varying markets,” Angle said. 

The third-party logistics company could see where shipment volumes were increasing and other data about those markets that helped with resource distribution.

“If the market had enough chassis, then maybe we don't need to reallocate our own assets,” Angle said.

Having an eye on rising volumes at other East Coast ports provided ITS Logistics longer term benefits, too. It allowed the company to “strategically align with our customers,” sharing guidance as they adjusted their supply chains, Angle said.

“It gives us visibility from end to end on supply chains that's bigger than the scope of just trucking,” Angle said. “It's the steamship lines; it's the chassis providers — all those other contributors in there allow us to perform better.”

Home Depot wasn’t ‘nearly as impacted’ as others

Home Depot operates two distribution centers near the bridge in Baltimore, and truckers and workers who once took the bridge have been using alternative routes to reach the facilities since the collapse.

Less than 1% of the home improvement retailer’s import volume enters the U.S. through the Port of Baltimore, Sarah Galica, Home Depot VP of transportation, said in an interview.

“Compared to some other industries, we weren't nearly as impacted,” Galica said.

Still, the chance to quickly join a call with DOT officials to hear what they were doing to help alleviate the situation was a useful resource in an uncertain situation, the VP said.

“They coordinated with all the other ports in the area to make sure they had enough capacity,” Galica said. “So you could see the work they were doing.”

IMC Companies does not use FLOW operationally

According to IMC Companies CEO Joel Henry, the marine drayage provider does not use the FLOW platform for operational purposes.

Instead, FLOW is more of a historical database that the company feeds usage data to, Henry said, adding that the program is used more by its two dozen beneficial cargo owners for predictive data for congestion and volumes. 

IMC shifted its local Baltimore capacity to Norfolk, Virginia; Newark, New Jersey; and Philadelphia in response to customer needs, said Jennifer Shaffer, IMC’s marketing director.

“We also shifted capacity from Newark and Philly to help with Norfolk surge,” Shaffer said in an April 22 email. “We are seeing cargo that is still at origin country ports diverted more evenly between Norfolk, Newark and Philly.”

Dive Brief:

• Labor contract negotiations covering port workers on the East and Gulf coasts are expected to begin soon with local-level bargaining slated to wrap up May 17, according to a joint announcement from union and employer representatives.
• The current six-year contract covering workers at ports from Maine to Texas will expire on Sept. 30. Both the International Longshoremen's Association — with 85,000 members in its ranks — and the United States Maritime Alliance (USMX) say they are committed to reaching a new agreement prior to that date.
• “The ILA and USMX expect to continue the success of our 2012 and 2018 Master Contract negotiations where two landmark six-year agreements were achieved without any disruption or delays in shipment of cargo," ILA President Harold J. Daggett and USMX Chairman and CEO David F. Adam said in a joint statement.

Dive Insight:

Although both sides want to reach a deal without any disruption, Daggett warned ILA locals in 2023 to prepare for a strike if an agreement isn't achieved by Sept. 30, adding that the union won't extend the current pact as it pursues a landmark deal.

A strike would add to the labor unrest shippers have had to account for in recent years, sparking heavy disruptions for U.S. supply chains reliant on East Coast and Gulf Coast imports.

"Over 13 million containers of import cargo pass through East and Gulf Coast ports each year, plus export containers, automobiles, bulk cargo, and more," said Jess Dankert, vice president for supply chain at the Retail Industry Leaders Association, in a May 14 blog post. "These numbers can represent as much as 56% of all U.S.-inbound containers in a given month."

However, Dankert noted that the ILA hasn't had a strike since 1977, with contract negotiations not as tumultuous historically as those seen at West Coast ports. Still, shippers may tap into mitigation plans based on risk alone. It's something many businesses did during West Coast ports labor negotiations prior to a deal being reached in June 2023.

"It may seem early, but retailers are making decisions right now about how to mitigate or avoid the delays and costs of possible East and Gulf Coast port disruptions in the Fall," Dankert said. "After all, no one needs a shipping container full of Halloween costumes in November."

General Mills has faced no shortage of supply chain disruptions in recent years: commodity inflation, war in one of the world’s largest grain-producing regions, labor shortages, freight and port snarls, and all the various effects of the pandemic.

But the packaged food giant was already building resilience into its supply chain before those events. “The nature of supply chain is always you're dealing with complexities,” Paul Gallagher, General Mills’ chief supply chain officer, said in an interview. “You're always dealing with some kind of disruption, whether that's disruption that you create from within in order to drive a different proposition, or disruption that's external.”

In other words, stuff happens. But resilient supply chains can react quickly.

Gallagher joined the company in 2019 as VP of its North America supply chain, where he was tasked with transforming its supply chain network to drive competitive advantage for the business.

He says the company began digitizing before the pandemic and doubled down during the COVID-19 crisis “to ensure that we were driving value and visibility to all the disruptions.”

The company’s effort to digitally connect its supply chain starts with sourcing. The resulting data of that linking “give[s] us visibility of potential risk and opportunity, whether that be weather patterns, or whether that be supplier disruptions or demand on suppliers, or what happened recently with the Suez Canal,” Gallagher said.

He added, “We now are so connected in understanding that it's not requiring an individual to go off and find the information — the information is already available, and it's prompting us with optionality around what to do.”

To achieve end-to-end visibility and analysis, the company has built a digital twin of its supply chain that runs on an advanced analytics and artificial intelligence platform, which General Mills is building with software firm Palantir.

“It's new to us, especially in the in the food industry,” Gallagher said. “Principally, it allows us to take multiple inputs and insights every day on that intelligent execution platform, and it consumes real-time data.”

Looking at just the company’s North American dry foods business, the system takes over 3,000 orders, assesses them overnight, automatically makes recommendations to an “already optimized plan,” and then produces 500 recommendations depending on variable inputs. All of that digital work helps automate certain supply chain planning functions and helps teams “make more learned and insightful decisions and trade-offs,” Gallagher said.

Along with visibility, these investments hold the potential to ramp up productivity. “What used to take a day to do is now taking us minutes,” Gallagher said. With those gains, General Mills is eyeing expanded margins. It also aims to free up supply chain staff to work more closely with customers on longer-term opportunities and so they are not “caught in the tyranny of the urgent,” Gallagher said.

As well as cutting back costs, visibility and analytics can help General Mills reduce its overall climate and sustainability footprint.

“We always had the ability to track” emissions in the supply chain, Gallagher noted. “But it required somebody to go in and assess it all. We now see it as it happens, and it's captured as it happens. So we've moved from episodic to actually dynamic.”

Few places were better visual representations of pandemic-induced supply chain chaos than grocery stores, where consumer stared down empty shelves of toilet paper and price spikes for everything from eggs to lettuce.

The Federal Trade Commission examined these supply chain shocks in a study published in March, exploring how pandemic-related disruptions impacted the grocery supply chain, and consequently, competition among retailers, wholesalers and producers.

In addition to examining publicly available data on industry costs and revenues, the FTC issued orders to nine companies, including grocery retailers, producers and wholesalers, to better understand their responses to supply chain challenges.

Disruptions included glitches in transportation and trucking, labor shortages, raw material and input constraints, and sudden shifts in consumer demand, according to the report.

These challenges showcased the overall dependence of the industry on a small pool of suppliers, the FTC reported. As the pandemic continued to disrupt operations, firms began strategizing supplier alternatives in a bid to protect themselves from overly concentrated markets and take firmer control of their product supply.

The study also revealed how bottlenecks escalate supply chain shocks for businesses and consumers. These challenges can then create opportunities for large retailers to influence and distort product supplies and pricing during shortages, enabling them to absorb market power.

Read on for three takeaways from the FTC’s study on the lasting impacts of pandemic disruptions on the grocery supply chain.

1. Consolidated supply chains are a liability

After historically using a just-in-time stocking model for products, retailers began to focus on strengthening their supplier bases during the pandemic, particularly for private-label products. But maintaining stock levels of private-label goods proved challenging when those products were only available from one or two suppliers, leaving companies vulnerable to shortages.

As an alternative option, some retailers considered directly manufacturing these products themselves. However, this can create market fragility as not all companies can self-supply.

Acquisitions in the space also bring challenges, as when a large company buys one of only a few producers, it leaves less product availability for the rest of the market.

2. Supply chain disruptions changed trade promotion dynamics

In the grocery industry, producers provide funds to retailers and wholesalers to promote their goods, whether it be shelf space, prominent placement, discounts or other strategies, the FTC reported. This changed during the pandemic as producers couldn’t fulfill outstanding orders amid sudden supply shortages.

The sudden reduction in trade promotion funds sent ripples throughout the industry, lowering manufacturers’ promotional spending on short-supply items and hitting a significant revenue stream for many wholesalers and retailers.

Some retailers fared better than others. For instance, “Every Day Low Price” retailers like Walmart were less affected because they rely less heavily on promotions and sales.

Both pricing models are expected to remain common.

3. Larger firms leveraged policies to pressure suppliers

Products with limited supply are typically put “on allocation,” or limitedly distributed, according to the FTC, which happened occasionally prior to the pandemic. But as producers and wholesalers were swamped with more orders than they could fill, allocating available product across customers became a bit more challenging.

The study reported that in some cases, large customers pressured suppliers on allocation decisions to improve their access to specific products. As an example, some large customers used “on time and in full delivery policies to pressure their suppliers to favor them over rivals.” This incentivized suppliers to allocate products in short supply to customers that imposed OTIF penalties.

Although OTIF policies were suspended early in the pandemic, wholesalers and retailers adjusted their requirements and penalized suppliers for incomplete or late deliveries. More than half of consumer-packaged goods companies reported that retailers tightened their OTIF requirements, including Walmart.

Meanwhile, smaller retailers were faced with less product than their larger competitors, leaving them at a disadvantage, according to the report.

Extreme weather events are the top risk facing supply chains in 2024, according to an annual outlook report from Everstream Analytics. 

The firm attached a risk score of 100% to the possibility of extreme weather causing supply chain disruption. That assessment follows a year where weather caused havoc for supply chains, from crop failures to storm damage to slowdowns on major shipping channels.

Among other examples, heavy rains and flooding in California, Nevada and Utah in spring of 2023 caused a 20% to 30% decrease in shipments in areas where transportation systems were disrupted, according to Everstream’s analysis. 

The firm also found that smoky conditions from 2023’s prolonged wildfires in Canada delayed deliveries in Chicago and New York by up to two days, while reduced visibility caused shipments in different areas to fall — by up to 75% in some places. 

To manage weather risks, Everstream recommends firms monitor routes for disruption and look to predictive weather forecasts and alerts. 

Extreme weather also factors into Everstream’s No. 5 supply chain risk in 2024: the potential for shortages of food commodities. Most at risk are sugar, rubber and fuel crops. 

“Commodity shortages will come to a head this year due to the culmination of many factors, including high input prices, farm profitability concerns, increasing protectionism, and extreme weather events,” the firm said in its report. 

Rounding out the full list of Everstream’s top five supply chain risks for 2024 were:

1. Extreme weather.
2. New environmental regulations that could create disruption to operations.
3. National protectionist measures, particularly between the U.S. and China. 
4. The potential for escalating tension over Taiwan and its political status with respect to China.
5. Shortages of agricultural commodities.

In various ways, sourcing from China was a factor throughout Everstream’s entire risk list for the previous year.  In this year’s report, Everstream pointed to the skyrocketing number of firms banned by China starting in 2017, which is continuing to ascend in 2023. The analytics firm also pointed to the continued outsized role China plays in the sourcing base for companies, including Apple.

Rising costs were a top challenge for manufacturers in 2023 — and this year looks to be no different. 

Inflation caused prices to spike for not only materials, but wages and energy. And while inflation has cooled in recent months and prices have started to stabilize, the issue of how to mitigate high costs remains a key priority for companies at the start of the year. 

This balance has been difficult for manufacturers, as low demand remained a consistent drag on the industry and has caused more companies to cut both supply and labor costs and lower production. 

In budgeting for the year ahead, manufacturers are weighing stubbornly high material and labor costs with the need to keep up production capacity and remain competitive.

So what are the 2024 manufacturing trends when it comes to costs? We spoke with experts on what companies should expect regarding labor, materials and operational costs like IT and insurance. 

Labor costs are likely to stay elevated, but turnover may ease

The cost of staffing factories is expected to keep climbing this year.

While manufacturing employment is expected to increase by 2% in 2024, wages and benefits costs are anticipated to rise by 5.2%, according to the Institute for Supply Management. That number is down from what manufacturers predicted for 2023 labor costs, which was 5.8%, according to ISM.

The downward tick is the result in part of easing inflation, said John Coykendall, vice chair of U.S. Industrial Products and Construction at Deloitte. In past years, a labor scarcity and high turnover rate drove costs up, reaching an average wage of $33.7 per hour in November, up 21% from January 2019, according to Coykendall. 

But a cooling voluntary turnover rate has prompted optimism among employers that wages won’t increase as steeply this year.

"Five percent may seem high, but relative to some of the labor increases that we saw earlier in COVID, it’s actually a real moderation," Coykendall said. 

Supply prices are slowly moderating from inflation highs

Commodity and energy prices have remained a concern for manufacturers amid high inflation. Looking ahead into 2024, ISM forecasts that raw material prices will rise 3.2% during the first five months of the year. 

That rise is an improvement from past years, said Tim Fiore, ISM's chair of its Manufacturing Business Survey Committee. Prices rose 4.1% in 2023 and have spiked a whopping 25% since 2020. 

"We're going to continue to see price growth in the first half of 2024, and then it's going to stabilize and stay that way for the rest of the year," Fiore said. 

Fiore noted he expects to see some decreases in commodity prices as the year progresses, but without large price swings previously seen in materials like steel and aluminum. 

Lead times for getting supplies to factories are likely to continue improving amid normalizing supply chains. This fact should also help companies' bottom line, Coykenall noted. 

While lead times peaked at an average of 100 days during the pandemic, Coykendall said as of August 2023, they'd fallen back down to 87, showing a positive trend. 

"Time is money, and the longer it takes to receive parts, the longer it takes to do the production, you're inevitably going to see costs coming up," Coykendall said. 

Manufacturers should get ahead on cybersecurity costs

A key manufacturing operations area in which experts say companies need to up their budget in 2024 is cybersecurity infrastructure. 

Data breaches cost an average of $4.47 million for manufacturers and other industrial industries such as chemical and engineering firms in 2022, up 5.4% from the prior year, according to IBM. At the same time, nearly half of critical manufacturers face a significant risk of a data breach. 

And as the threat and costs of cyberattacks in supply chain-related industries continues to rise, manufacturers need to take precautions to protect their operations, said Aaron Tantleff, a partner in Foley and Lardner's technology transactions, cybersecurity and privacy practice. 

Tantleff encouraged manufacturers to increase their spending in 2024 to secure their tech infrastructure and employees' devices. The industry, he said, has lagged behind others when it comes to investing in cybersecurity. 

One of the top spending priorities for the year should be to upgrade security features on all needed devices, Tantleff said, ensuring they are equipped with industrial-grade cybersecurity features. Spending plans should also include "patching" any cybersecurity holes in a company's network on a more frequent basis. 

"The larger the number of devices that are added to the environment, the greater your attack surface vector is," Tantleff said. 

Climate change is driving up insurance costs

The past year's inflationary pressures were felt in not only wages and supplies, but insurance claims. 

As the cost of facilities and equipment has risen, it's also driven up the price of disruption downtime and interruption losses filed for insurance claims, said Brett Hoopingarner, director of underwriting at Sentry Insurance. 

As manufacturers prepare their insurance budgets for 2024, Hoopingarner encouraged companies to work with their provider to review their property limits. This can help ensure that a company's policy can cover the full scope of possible reconstruction costs, taking into account recent inflation. 

"We have seen, really since the end of 2019, reconstruction costs are up over 40% during that time," Hoopinger said. "If a manufacturer has not kept up, on an annual basis, reviewing those limits and making sure that the buildings are adequately insured, then unfortunately the time they usually find out is if they have a loss, and that's not the time you want to find out you're underinsured."

As the threat of climate change and extreme weather continues to grow, companies also need to account for greater possible storm destruction costs. This could include increasing the amount of interruption time covered by insurance, rather than simply a dollar amount. 

Tornadoes, flooding and other disasters are hitting greater swaths of the country, putting more facilities at risk. In 2022, the U.S. experienced 18 separate billion-dollar weather disasters; the annual average between 1980 and 1922 was 7.9 events, according to the National Oceanic and Atmospheric Administration. 

To mitigate those higher possible interruption costs, Hoopinger encourages companies to get facilities, particularly roofs, inspected and reinforced in advance.

"If a tornado is going to come through and rip up your building, there's nothing you can do to stop that. It's just a fact of the matter," Hoopingarner said. "But what you can do is have a good continuity plan in place if that happens.”

Parcel shippers may opt to use fewer delivery providers in 2024, countering the push for carrier diversification that became prevalent amid pandemic-related challenges.

Smaller, regional delivery providers — those outside the FedEx, UPS and U.S. Postal Service realm — are particularly vulnerable to potential reductions, experts told Supply Chain Dive. Major carriers are offering shipping discounts to counteract volume declines, and customers may find it harder to justify splitting shipments among a wide array of carriers in an uncertain demand environment.

“There probably will be some consolidation this next year,” said Andy Whiting, co-founder and CEO of the parcel carrier Better Trucks. “For us, it just means we want to make sure that we have this really solid distribution-to-doorstep network that's very valuable for customers. They're evaluating us against FedEx and UPS.”

Carrier consolidation is already happening. The number of carriers shippers used jumped in the summer as companies made preparations to mitigate disruptions from a potential UPS strike. But with strike concerns alleviated, diversification is dipping like it did at the start of 2023.

The number of carriers per company account has declined for three consecutive months, dropping to 5.74 in December, according to data project44 shared with Supply Chain Dive.

"At some point, there's not enough [volume] to go around for five carriers — there just isn't," said Josh Dinneen, chief commercial officer of the parcel carrier OnTrac, in an interview last year.

FedEx, UPS take share with discounts

Capacity is no longer a concern as delivery demand has softened, meaning carriers have to compete more aggressively to draw additional volume and revenue into their networks. Enter discounts from the likes of FedEx and UPS to grab more market share and attract cost-conscious customers.

In a January LinkedIn post, Dean Maciuba, managing partner, United States, for Crossroads Parcel Consulting, said FedEx offered discounts to businesses with little or no shipping revenue tied to their accounts. The offer claimed eligible shippers could tap into the savings via FedEx's small business discount program.

Meanwhile, UPS is fighting to regain volume that it lost during contentious contract negotiations with the International Brotherhood of Teamsters in the summer. Rent the Runway was among the customers that capitalized by locking in more favorable rates, in exchange for UPS handling most of the company’s shipping needs.

"We've had a couple of clients that were strong UPS clients that jumped ship and now UPS is eager to get that business back," said Stephanie Martin, CEO of Navigo Consulting Group, a transportation spend consultancy.

Of the 1.5 million packages per day that shippers diverted to FedEx, the U.S. Postal Service and other carriers due to the negotiations, UPS regained roughly 40% of that volume as of October. Half of that recapture came from FedEx, CEO Carol Tomé said in an earnings call.

However, FedEx Chief Customer Officer Brie Carere maintained in December that the company is still holding onto the 400,000 packages it gained from UPS during the uncertainty, meaning the volume UPS took back would have to come from the Postal Service or smaller providers.

Regardless, both delivery giants reaped the benefits of their efforts to grab more packages during the busy shipping week of Black Friday. Over that period, they took a larger share of volume from regional delivery providers than the year prior, according to Shipium data.

Alternative carriers still offer upside

While FedEx and UPS' discounting efforts pose a challenge for smaller delivery providers looking to gain share in the market, shippers wouldn't abandon alternative carriers entirely, experts said.

After all, it has become easier for shippers to diversify their carrier base thanks to the emergence of third-party tools in recent years. Additionally, regional carriers have expanded their own service offerings while adapting to UPS and FedEx's pricing strategies.

"We've seen very, very competitive rates from the regional carriers, and we see service improvements with the regional carriers as well," Martin said.

Delivery needs and carrier preferences vary on a client-by-client basis, meaning there is no magic number of carriers a company should have, Martin said. However, business-to-consumer retailers tend to embrace a multi-carrier model moreso than shippers in other industries, she added.

"They want the flexibility of being able to shift volume and use different carriers," Martin said.

For shippers looking to diversify, service reliability is a top concern, along with ease of use and implementation. They want a delivery service that looks and feels like what they expect from UPS and FedEx without the complexities that often come with adding more carriers, Better Trucks’ Whiting said.

"They don't want to have to have a huge logistics team internally to think about how we divvy up all this volume and how do we optimize our spend," he said. "They basically want to have the easy button."

How FedEx, UPS competitors are adjusting

Executives at smaller parcel carriers told Supply Chain Dive they're focused on maintaining high service levels in existing markets to keep current customers happy. Expansion in 2024 will happen in a more careful manner compared to years' past.

If shippers end up reducing their carrier mix this year, smaller delivery providers may pivot into specialty shipping services and expand their offerings when the demand environment improves, GLS US President Steven Bergan said.

One tactic to fuel growth has been to collaborate with other regional carriers. GLS and Better Trucks launched a partnership last year allowing customers of each company to access the coverage area of the other carrier for deliveries. GLS' network focuses on markets in the western U.S., while Better Trucks delivers in a mix of regions including the Midwest and much of Texas.

The collaboration aids both companies' efforts to offer a competitive service for their customers that are looking to leap into new markets, combating national carriers' efforts to gain more volume.

"I anticipate there will be winners and losers, and we believe we're building a network that will be one of the winners," Whiting said.

Shippers are facing yet another disruption as the year comes to an end, as the Suez Canal becomes a less viable route to move cargo.

In early December, attacks on vessels traveling to the shipping channel through the Red Sea led major carriers to reroute ships or halt transit. And while an international operation is being coordinated to help secure safe transit for commercial vessels, logistics managers now find themselves assessing contingency plans until the situation is resolved.

Supply Chain Dive spoke to several shipping and logistics experts about some of the concerns shippers may have given the current situation. Here's five questions and answers that may help shippers decide where, how and when to reroute their cargo.

1. How are carriers responding?

Carriers are acting fast given the potential of Houthi-led attacks on cargo ships.

Beginning Nov. 19, about 55 vessels were rerouted through the Cape of Good Hope route, "which is a significantly low number when compared to the number of 2128 vessels transited the Canal in that period,” according the Suez Canal Authority. In 2022, 23,851 vessels transited the Suez Canal, with an average of 68 ships per day.

Longer transit times are expected in the medium term for shipments that have not departed, Nathan Strang, director of ocean freight, U.S. Southwest and SMB at Flexport, wrote in a December LinkedIn post. "How much depends on what the vessels' original routing was and when the vessel diverted. Keep in mind that some of these vessels were already diverted away from the Panama Canal," he added.

2. What alternatives exist?

Shipping lines can use the Cape of Good Hope in South Africa to bypass the Suez Canal.

However, the safer alternative for shippers comes with extra costs and transit times. A trip from Singapore to Rotterdam around the cape is an extra 3,500 kilometers by container ship, Michael Zimmerman, partner in the strategic operations practice at Kearney, a global management consulting firm, said in an email.

"The extra fuel will cost an additional $500,000 to $1,000,000 and shippers have the inventory on their books [for] an extra 20-30 days," Zimmerman said.

On the Asia to U.S. East Coast route, shippers could also switch modes, leveraging truck and rail intermodal moves from the U.S. West Coast, Strang said during a Dec. 20 webinar.

However, other experts pointed out these are also imperfect solutions, as shipments will be delayed in either case. In emails, forwarders told Supply Chain Dive they were working with customers to assess near-term freight risks, and redirect customers to alternative routes.

C.H. Robinson Operations Supervisor Matthew Burgess said their plans include a combination of sea and air solutions via Colombo, Dubai or the U.S. West Coast, in addition to traditional airfreight solutions and expedited inland services once cargo arrives at port. Meanwhile, a Kuehne+Nagel spokesperson said the company was encouraging customers to use a sea-to-air solution, where eastbound shipments could arrive from Asia by sea to Dubai, then transit by air.

“This allows for a faster transit time compared to sea freight and a more sustainable and cost-effective solution than direct air freight,” the forwarder said in an emailed statement to Supply Chain Dive

3. What could happen to ocean freight rates?

In a weekly emailed update, Freightos said rates will almost certainly increase from Asia to Northern Europe.

Ocean carrier ZIM, which began diverting its vessels that normally use the Red Sea in November, increased rates for its Asia to Mediterranean service. Now, shippers must pay between $3,300 and $3,400 per forty-foot equivalent unit for the service, according to Freightos.

Spot rates are also increasing already. Rates from Asia to the U.S. East Coast and West Coast have already increased slightly and more are likely to come, Lars Jensen, CEO and partner at Vespucci Maritime, said in a LinkedIn post in December., referencing Drewry's WCI Index. However, he also said the rates remain comparable to levels seen earlier this year.

So while rates are rising, experts said readers should not expect them to increase as severely as they did the last time the Suez Canal was blocked for a prolonged period, in 2021.

“Because of the excess capacity available to address the disruption – something that was not the case during the Suez Canal blockage in 2021 – it is possible that the industry will avoid the extreme rate spikes like those seen during the pandemic,” Freightos Head of Research Judah Levine said in an emailed update.

4. What goods could be most affected?

During the 2021 blockage, experts told Supply Chain Dive nearly everyone may be affected in some way, given the size of the trade route. And companies like Walmart and Ikea, as well as the automotive and technology industries, may be particularly exposed.

The Suez Canal is a critical artery for the Asia-Europe trade, which represents 12% of vessel routes and 30% of global container traffic, according to Lawson Brigham, a retired U.S. Coast Guard captain who wrote about the topic in the U.S. Naval Institute's Proceedings Magazine issue.

As a result, experts said the Asia to Europe trade lane will likely be most affected, as it is the shortest sea route available.

“The market anticipates that especially in Europe which is on the receiving end of import containers from the Middle East, India, southeast Asia and China, that container scarcity will lead to an increase in container prices and the market," Christian Roeloffs, CEO and founder of Container xChange said in an analysis shared with Supply Chain Dive.

In the U.S., goods sourced from Asia – such as apparel, toys and electronics – and shipped to the East Coast may also be affected, Srini Rajagopal, VP of logistics product strategy at Oracle told Supply Chain Dive. Exports from the East Coast, like grains, liquified petroleum gas and liquefied natural gas, may also be affected.

However, any commodity that can be shipped using alternative modes, such as air, may be safe from severe disruption. Zimmerman said the list is small, though, and “only the most expensive goods that move by air or domestically produced and consumed goods or goods that can move internationally by truck will remain unaffected.”

5. What else should shippers know?

Shippers considering shipping from Asia to the Gulf Coast need to be aware that the trade lanes may also be subject to delays due to ongoing drought restrictions at the Panama Canal.

"The Panama canal is still experiencing a drought which is resulting in less vessel slots being available on a daily basis," Anders Schulze, SVP and global head of ocean freight, at Flexport said during a webinar. "The number of slots are expected to decrease going into February, so the Panama delays could increase over the next 6-8 weeks."

Besides tackling alternative shipping routes, shippers should also look into material sourcing strategies, Rajagopal said.

“This includes multi-sourcing (using multiple suppliers for a certain material in case one of the suppliers is unavailable) and sourcing materials in-region (using sources that are physically closer to the manufacturing hubs),” Rajagopal said.

In addition, shippers should be wary of their insurance premiums.

While there are some small niche carriers that can offer shippers an Asia to Mediterranean service route using the Suez Canal, shippers need to realize this comes with a risk, Jensen said during a December Flexport webinar.

“You do risk losing your cargo, but I would also read insurance premiums extremely carefully to see if you are covered in a situation where the risk is this obvious," Jensen said. "I would not be surprised, as some might find it impossible to get their cargo insured at all.”