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.

Last year 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. Just this year, 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 last year 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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By TA Dedicated

Organizations that have high safety standards, understand the impacts safety has on revenue and costs. They prioritize safety across all aspects of the organization to minimize risk.

Prioritizing safety leads to better outcomes

According to the Federal Motor Carrier Safety Administration (FMCSA), there were approximately 499,000 police-reported crashes of all severity (minor to major) involving large trucks in 2019. The average cost of a semi-truck accident can vary significantly depending on factors such as the severity of the accident, property damage, lost wages, medical expenses, legal fees, insurance costs, regulatory fines and more. 

The FMCSA breaks down an average truck accident cost:

• Health and property damage average of $334,892
• A semi-truck pulling multiple trailers an average of $1.2M
• A semi-truck accident resulting in a fatality an average of $7.2M

The importance of safety in transportation management

While some may rank safety behind revenue and expenses, those that prioritize safety show positive impacts and results. Here are some key areas to consider when assessing safety and risk in transportation providers:

Preservation of brand reputation:

Make sure you’re using a carrier that has a high reputation of safety. Look for that provider who prioritizes these attributes:

• Ongoing driver and operations safety training
• Driver and operations regulatory compliance
• Worker safety and well-being
• Cargo and asset protection

Insurance costs and risk management:

When damages to freight happen there are costs that occur including loss of assets, loss of time, insurance claims, replacement and repair, customer dissatisfaction and the threat of legal action that all lead to financial loss and increased costs.

The key to a safety-first culture: Everyone

Fleets that have a safety and operational-led culture ensures shipper customers are receiving reliable service, a lower risk profile, compliance assurance, quality service and peace of mind.

The safety training difference

Real value comes from carriers who specialize in tailoring training to the individual needs of a driver in tandem to the specific needs of the customer. Here are some specific training examples:

Route familiarization:

The practice of route familiarization involves comprehensive training aimed at detailed mapping of roads, an in-depth analysis of potential road hazards, traffic congestion, environmental conditions, and alternate routes.

Driver customer service training: 

This specialized training equips drivers with the skills necessary to excel in customer interactions and unique delivery requirements and the ability to resolve any service-related issues.

Technology and equipment training:

Drivers that are trained on advanced technology such as GPS, electronic logging devices (ELDs), and telematics systems ensure they know how to use them safely and effectively.

Specialized service including load securement training:

Securing freight is critical to safety and regulatory standards. For example, drivers transporting hazardous materials are trained in specific securement techniques to prevent spills and accidents.

Emergency response training:

Emergency response training helps drivers learn how to swiftly contact emergency services and are exposed to simulation-based training on real-life scenarios that prepare them for a wide range of emergency situations.

Continuous education:

Carriers must provide drivers a wide spectrum of learning opportunities, including updates on legislative changes, technology advancement and new best practices aimed at enhancing efficiency, safety, and environmental sustainability.

Driver wellness programs:

Driver wellness programs support the physical and mental health of drivers through initiatives focused on proper nutrition, regular exercise, and effective management of stress and fatigue.

Advanced technology supports safety for trucking solutions

Fleets of all sizes and expertise have become more efficient and a greater asset to shippers through their adaptation of technology and data-driven insights.

Dash and forward-facing cameras:

The integration of forward-facing cameras within fleets has markedly improved road safety, demonstrating significant potential in reducing accidents and mitigating risks. The Insurance Institute for Highway Safety estimates that 81% of truck-involved accidents are not the fault of the truck driver, where forward-facing cameras can provide critical evidence for exoneration.

AI Application and Machine Learning:

Telematics and AI offer a unique opportunity for technology and human responsiveness to collaborate. According to CCJdigital, worker safety issues accounted for 31% of 2023’s biggest business threats. AI can now provide informed recommendations based on analysis of usage patterns, inefficiencies, and routes to flag safety issues before they become problems.

Maintaining a fleet and safety checks

Well-maintained fleets are instrumental in minimizing the risk of accidents. Investing in regular fleet maintenance is not just a regulatory compliance issue but a strategic decision that enhances road safety, protects company assets, and fosters a culture of safety.

The safety inspired advantage

Fleets offering a comprehensive option that ensures safety and efficiency in trucking operations can lead to lower costs, improved efficiencies, and higher ROI. Shippers who leverage safety-driven fleet models benefit from consistency in service while enabling reliable performance and improved safety outcomes to mitigate risks.

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.

To decarbonize the world, the world must decarbonize the supply chain, and quickly.

Some 75% of all greenhouse gas emissions fall under Scope 3 emissions, which includes the upstream supply chain as well as the end use of a company’s goods and services. 

To cut those emissions enough to avoid catastrophic climate change will take technology, infrastructure, operational changes — and money. 

The total cost of transitioning the global economy to net zero emissions could cost an extra $3.5 trillion a year in capital spending, or roughly half the profits of the world's global corporations, according to a 2022 McKinsey estimate. 

As more businesses look to reduce the carbon footprint of their supply chains, the question of who will pay for the necessary changes — buyers or suppliers — will become more pressing. Even the world's wealthiest brands are discovering the true cost of decarbonizing their supply chains. 

“The amount of internal investment being put into decarbonization activities varies enormously between organizations,” said Simon Geale, EVP of procurement at the consultancy Proxima. “It's not just suppliers that are struggling with ‘How do I pay for this?’ It’s organizations.”

And while some major brands are investing to help suppliers lower their emissions, some may simply be dumping the issue and its costs onto their supplier base for them to figure out on their own. 

In some industries, such as fashion, those suppliers are already struggling with tight operating margins. “How are they going to invest when there's no cash flow? Cash flow is the problem,” said Chana Rosenthal, principal of reDesign Consulting. “That makes it challenging to invest in green [technologies].”

‘The biggest hill’ in climate action

At many companies, cost-control — not carbon reduction — remains the top priority.

In an Efficio study this year, only a third of surveyed executives and managers said they were “very confident” in their ability to hit their carbon reduction goals. The study shows cost control remained a top responsibility for procurement leaders over others, including sustainability. 

Even within environmental reduction investments, cost reduction is the top driver, according to a GEP survey of executives this year.

“Behind closed doors, a lot of CFOs are saying, ‘Well, I know that I'm going to have to do it. But when do I have to do it?’” Geale said, referring to action on supply chain emissions. “Because there's an immediate cost rather than an immediate payback.”

Unfortunately for humanity and the rest of Earthly life, the climate is indifferent to budget plans and profit targets. The world needs to cut greenhouse gas emissions by 43% by 2030 to avoid some of the most extreme outcomes of climate change, according to the United Nations’ Intergovernmental Panel on Climate Change.

Scope 3 emissions, specifically those tied to the supply chain, present an especially steep challenge and cost burden. Simply understanding the extent of a footprint takes time, data and often technology. All of that takes money. Because these emissions occur outside the company's purview, they are the most expensive to track, while also often being by far the biggest chunk of most carbon footprints.

“The biggest hill is Scope 3,” Jackie Sturm, Intel VP for global supply chain operations, told Supply Chain Dive in an interview earlier this summer. “If you look at Scopes 1 and 2, we have converted to renewables — well before this was popular.” In 2022, Intel’s U.S. and European operations ran on 100% renewable energy, and the company aims to operate on 100% renewables across global operations by 2030, according to its corporate responsibility report.

“But to bring that back to our supply chain is challenging because, as a semiconductor company, we use almost everything on the periodic chart.”

For Intel, that means its climate footprint size is tied to the mining of a range of minerals, each of which comes with its own emissions creation. Mitigating that footprint takes an enormous toolbox, including data collection, choice of more sustainable materials and working with suppliers, to find out how much of their carbon footprint is intrinsic to their production and what they are doing to mitigate it. 

Some carbon-reduction efforts could pay for themselves in the long run through operational changes that produce value by increasing efficiency or cutting down on energy costs, Sturm said. “How do I maybe reduce consumption? How do I shift my consumption to greener chemicals? How do I bring things in more regionally rather than transport them across the ocean?”

For suppliers that can afford it, they may have their own incentives to invest in emissions reduction, particularly in consumer goods sectors where more customers want sustainable products.

“What we found generally is, at least in our industry, it's really moving towards suppliers seeing climate as a competitive advantage, and really investing in their own value chains,” Nancy Mahon, chief sustainability officer for The Estée Lauder Companies, said during an Economist Impact conference panel in Washington, D.C., earlier this year.

But many suppliers may not have the resources to make investments without help. 

How to get a CFO interested in cutting Scope 3

Finance may be able to help bridge at least some of the gap between global environmental imperatives and corporate financial goals, and between buyers and suppliers when it comes to cutting emissions.

For CFOs, “one of the things that really perks their ears up is the idea that they can get access to better financing rates by performing better on green initiatives, which I think is super interesting,” Geale said. 

The market for green capital has expanded rapidly in recent years. One area where investors can put their money to work funding the climate transition is through so-called green bonds and other lending instruments. 

These can help finance environmentally-focused projects. Apple, for example, announced $4.7 billion in green bonds last year to “jump-start the development of new low-carbon manufacturing and recycling technologies,” including carbon-free aluminum for its products, as the computing giant aims for a carbon-neutral supply chain by 2030.

Walmart, the world’s largest retailer, announced an “inaugural” $2 billion in green bonds in 2021, with some of the proceeds going to waste-reduction and sustainable transport initiatives in its supply chain. So far, projects include a program working with tire supplier Apache Mills to turn used tire materials into heavy-duty commercial entrance mats sold at the company’s Sam’s Club stores. 

Walmart is also trying to help its vendors decarbonize through a supply chain finance program tied to environmental goals. Introduced in late 2021 as an “industry first,” the program — offered through HSBC — gives suppliers better financing terms if they meet science-based greenhouse gas reduction targets tied to the retail giant’s Project Gigaton, which aims to cut 1 billion metric tons of emissions from its supply chain by 2030.  

In effect, big retailers like Walmart can use their solid credit ratings to get cheaper finance and faster payments for their suppliers, and use that as a carrot to incentivize lower emissions. 

“When we propose one of these programs to a CFO, they're like, ‘Sure, this is great if we get more capital,’” said Eric Fisch, head of retail and apparel for HSBC’s U.S. commercial banking business. “And then we propose it to their chief sustainability officer, and they're like, ‘This is amazing. I want to do this.’”

The programs also can include capital for some supplier projects to help them with environmental and carbon-reduction initiatives. 

How supplier projects are chosen is still being fine tuned, and Fisch noted there is a limit to the number of projects such a program can fund. “If you did it for every vendor, all of a sudden you'd be out a lot of money,” he said.  

Outsourcing sustainability to suppliers

Whatever the usefulness and limits of such financing programs, they are far from ubiquitous. 

For many suppliers, especially in low-margin industries like apparel, buyers’ Scope 3 targets are just another challenging demand and expense leveled by the powerful brands they depend on as buyers. 

“More and more, you’re putting all of the pressure on suppliers,” Rosenthal said, pointing to the history of outsourcing manufacturing and other functions to suppliers outside of big consumer-facing brands. Sustainability, in that model, can be outsourced too.

Some garment manufacturers have reported this as happening. In a study that Rosenthal co-authored with Natasja Sheriff Wells for the NYU Stern Center for Business and Human Rights, some manufacturers in Bangladesh reported “expensive new environmental mandates to reduce water use and carbon emissions,” that added to their economic pressures. Brands, the report noted, generally declined to incentivize those mandates with financial benefits. 

Yet suppliers may well be interested in reducing their footprints. “We talked to many suppliers around renewable energy, and they're all interested — they want to, at least the ones we spoke to — but that's not an easy solution,” Rosenthal said. “It takes time and money.” 

Complicating matters is that buyers’ requirements around the environment keep changing and often vary from buyer to buyer. “What some suppliers are having trouble with is, they have invested in something and then something else comes along, and then they have to reinvest,” Rosenthal said. 

Across industries, there are a range of approaches, some more conducive to working with more financially strapped suppliers than others. 

“I've seen companies go to their supplier base and say, ‘Here's my target, comply or die. If you're not able to reduce your emissions in line with my target, I'm gonna kick you out,’” Proxima’s Geale said. “Which is a particularly draconian and ineffective way of running a decarbonization program.”

Geale went on to note, “I've also seen examples of where organizations are saying, ‘Let's have a more structured supplier engagement approach. Let’s figure out where you are, how we can help you, can we unlock financing solutions for you and be more collaborative.’” HSBC’s Fisch said he expects that the costs of the carbon transition will ultimately be split in some way among suppliers, buyers and consumers. He pointed to the recent period of historic inflation sparked by 2021’s supply chain snarls, which came with “a collective sharing of the pain" of cost inflation.

“Some of it got absorbed by the factory, and then some by the wholesaler, then some by the retailer, and then the price increased to some degree,” Fisch said of inflation. “It ends up becoming a collective burden. And that's the way I would envision any transition,” related to climate initiatives.

One simple way to help finance the transition for suppliers may be through generally good buying practices like paying on time and committing to purchases, according to Rosenthal. 

“If you truly want to decarbonize, you have to start there and allow them the ability to mend their business,” Rosenthal said. “Talk to them and figure out what their needs are.”

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.”

As shippers face another ocean freight disruption — this time at the Port of Baltimore —  companies are yet again making contingency plans to ensure on-time cargo delivery.

Most of the Port of Baltimore’s operations remain suspended after a container ship crashed a bridge near the port, blocking ships from entering the gateway. Halting vessel traffic at the port will have a ripple effect on commodities such as cars, light trucks, farm and construction machinery, forklifts and various bulk goods, according to DAT Freight & Analytics.

“March is the peak import month in Baltimore for farming equipment ahead of planting season in the Midwest,” the freight marketplace platform said in an email.

To better assess the situation, Supply Chain Dive spoke to logistics experts about some of the concerns shippers may have. Here’s four questions and answers that may help shippers decide where and how to reroute their cargo. 

1. How long will it take Port Baltimore to resume full operations?

Vessel access to most of Baltimore's port terminals is currently blocked by debris in the waterway where the Francis Scott Key Bridge collapsed. 

For the port to get back to full operations, the debris must be cleared from the shipping channel, Secretary of Transportation Pete Buttigieg said in a March 27 press briefing.. While details remain unclear, the U.S. Coast Guard is coordinating with the U.S. Army Corps of Engineers to lead the channel clean up and reopen the seaport.

In the meantime, the Port of Baltimore said that vessel traffic in and out of port is suspended until further notice, but trucks are still being processed.

But not all vessels have been stranded since the incident.

Tradepoint Atlantic — which operates a terminal on the other side of the Key Bridge — said it had accepted the Wolfsburg, a regularly scheduled roll-on/roll-off vessel for Volkswagen, on March 27. The news marked the first cargo arriving at the Port of Baltimore since the accident on March 26.

2. What port of call alternatives are there for ships?

With the Port of Baltimore’s limited operations, shippers may need to call nearby ports in New York, New Jersey, Virginia, and North Carolina, according to an emailed report from project44.

Another option is the Port of Philadelphia.

“MSC and Maersk also use the port in Philadelphia," Mollie LeBlanc, VP of operations at Uber Freight, said in an interview with Supply Chain Dive.

Some East Coast ports have already said they are ready to receive cargo from vessels diverted from Baltimore. The ports of New York, New Jersey and Virginia have publicly said they are coordinating with shippers and their Maryland counterparts to handle a greater flow of cargo.

“We’re not worried about the impact this will have on capacity, we have ample capacity. And we have honestly a fair amount of experience in handling surge cargo,” Spokesperson Joe Harris from the Port of Virginia told Supply Chain Dive in an interview.

Although farther away, Georgia ports could also be an alternative for shippers.

The Georgia Ports Authority issued a statement saying that it expects little impact and for most cargo to be diverted to Northeastern ports but it has that space to accommodate if needed. Georgia Ports Authority operates two roll-on and roll-off facilities: Ocean Terminal in Savannah and Colonel’s Island Terminal in Brunswick.

3. What alternative modes of transport can shippers use?

While ocean carriers can't circumvent the destroyed bridge, shippers have other options for surface transportation.

Trucks are still being processed at the Port of Baltimore's several marine terminals. However, to enter the marine terminals without the collapsed bridge, truck drivers can use I-695, I-95, or I-895, DAT Freight & Analytics told Supply Chain Dive in an email. The detour would add 20 to 30 minutes extra, or 12 to 15 miles, for a hypothetical trip from Baltimore to Atlanta. Estimates from other sources suggested some truck routes could see roughly an hour of delays due to detours.

A similar trip would be required to access Sparrows Point, where there is a sizable warehouse market, including companies such as McCormick & Co., The Home Depot, Under Armor, Floor & Decor, Volkswagen Group of America, and BMW, according to DAT.

In addition, some changes for landside rail have already been announced. 

CSX, for example, told Supply Chain Dive it has contingency plans in place, which includes dispatching additional trains to the port if needed to ensure coal storage capacity isn’t exceeded. And while international intermodal shipments have stopped at the port, the railroad said in an email domestic intermodal service continues to and from other yards in Baltimore.

On the other hand, a Norfolk Southern spokesperson told Supply Chain Dive the railroad provides customers alternative routing solutions. The railroad touches every other major port on the eastern seaboard.

4. Is airfreight an option?

Airfreight has been a go-to strategy for some shippers to ensure on-time deliveries when ocean shipping goes wrong. But since the Port of Baltimore handles bulk cargo, airfreight may not be as straightforward a solution as it has been in the past.

“At this stage we haven’t had inquiries about converting Baltimore cargo to air while the port is closed," Matt Castle, VP for global forwarding at C.H. Robinson, said in an email. "Because Baltimore primarily handles fully assembled vehicles and bulk goods like coal, those products by their very nature aren’t practical to ship by air.”

Castle also said that sensitive pharmaceuticals or healthcare products could be an exception.

”But those are often booked by air to begin with and Baltimore is not a particularly air-heavy market,” he said. “If we do see an influx of conversions from ocean to air freight, freighter services to New York would typically serve the Baltimore area and there’s plenty of capacity.”

Inki Sul, visiting assistant professor of operations management at the Tepper School at Carnegie Mellon University, pointed out Amazon and FedEx have distribution centers at nearby industrial parks, as one example.

In general, shippers should expect "to see significant delays and rerouting for inbound shipments," Sul said in an email. "Logistics and supply chain managers should expect longer lead times and potential price hikes in procurement of raw materials and inventory.”

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.

While many disruptions of recent years have eased, business leaders still report high levels of anxiety around investing and sourcing amid persistent geopolitical uncertainty, according to AlixPartners’ latest Disruption Index. 

The index, released in January, fell 5% year over year in 2023 after falling 4% from the prior year, coming off a big spike in 2021. The index draws from a survey of 3,100 executives, about 10% of whom were CEOs.

CEOs expressed more anxiety than other respondents, with 65% reporting high levels of disruption to their company compared to 49% of non-CEOs surveyed. Large majorities of chief executives also reported worrying that their companies were not adapting quickly enough, their executive teams lacked requisite agility and that they didn’t know which disruptive forces to prioritize.

The consultancy also looked at what it takes to be a disruptor in the current environment, companies that, in the words of the report, devise “strategies and tactics that prepare them to deal quickly with whatever the business environment throws at them — both on offense and on defense.”

In the consumer products industry, companies AlixPartners labeled as disruptors are 35% more likely than others to change their supply footprint by reshoring or nearshoring.

“[S]ourcing, manufacturing, distribution, and retail are all experiencing radical change,” the report authors said. “The smartest companies will act now both up and down the value chain before others take away their options.”

AlixPartners also called out sourcing as a potential competitive advantage in the retail industry, amid rising pressures for sustainable products as well as the impact of geopolitical tensions on suppliers.

Even as supply chains recover from the tumult of the pandemic, other challenges such as armed conflicts and trade disputes have and could continue creating delays and shortages for certain goods in 2024 and beyond, according to experts and analysts. 

“Facing continued headwinds into 2024, the winners in this landscape need a shrewd sourcing strategy, agile operations, and a smart uptake of tech like artificial intelligence if they are to stick around to respond to the next evolution in consumer behavior,” the authors 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 Tuesday 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 Wednesday 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.”

As long as single-family housing activity doesn’t take a deep dive, the U.S. could avoid further fallout as it transitions economically into a post-pandemic world.

That's according to Jason Miller, an associate professor and interim chair of Michigan State University’s Supply Chain Management Department, speaking during Supply Chain Dive’s July 11 virtual event “Supply Chain Outlook: Trends and Risks To Watch in 2023.”

He noted that the best-case scenario for the economy for the rest of 2023 would have new construction of single-family housing improve, possibly putting housing activity 10% to 15% higher than it was prior to COVID-19. The ability for consumers to pay for major expenses such as homes and cars as well as businesses’ capacity for significant projects can signal how the economy is doing amid federal interest policy shifts, panelists said.

But the country seems to be heading for a hard landing, Flexport Chief Economist Phil Levy also said as a panelist. He said it's unclear when that could happen, though.

He advised that businesses shouldn't overextend themselves, be ready to know if economic problems will occur and monitor if issues are happening sooner than expected. Watching the labor market and whether core inflationary measures are moving significantly downward or not are good signs to pay attention to, he added.

The Federal Reserve has sought to control inflation by raising interest rates and cutting its balance sheet since March 2022. Levy noted that a core Personal Consumption Expenditures inflation rate and a core Consumer Price Index — the CPI minus food and energy — have been hovering between 4.6% and 4.8% for months, but the Fed wants them to be 2%.

But if inflation remains stubbornly high, the Fed will continue to raise interest rates, putting a damper on demand, panelists said.

"Are they remaining stubbornly high?" Levy said. "In which case, buckle in."

Last year broke the crystal balls.

Some of the largest, most sophisticated companies in the world overbought or overproduced inventory by many millions of dollars in 2022. The reason, at its simplest, is that consumers did not behave as predicted.

Planners don’t have the luxury of blaming consumers for not acting according to their forecasts — especially when many of those customers were reacting to historic inflation in food, fuel and housing.

“Demand planning went out the door for three years,” said Rick Jordon, senior managing director with FTI Consulting. “Now they’re picking it back up, because they have all this excess inventory everywhere. And they’ve forgotten how to do it, or they didn’t do it well before.”

After three years of pandemic disruption and economic volatility, sharpening demand forecasts and inventory planning across industries seems both as imperative and challenging as it has ever been.

To get better results, companies are turning to new data sets and new technological tools like artificial intelligence to analyze them.

From spreadsheets to AI

An executive survey by McKinsey from early 2022 found that spreadsheets are still the primary planning tool for supply chain leaders, with 73% of respondents relying on them.

But, 43% said they planned to use artificial intelligence and machine learning for some planning activities. Another 17% said they planned to use AI and machine learning for most activities at some point.

A survey from BlueYonder, a supply chain software company, found that demand forecasting and inventory optimization are among the top uses of AI and machine learning technologies by supply chain executives

“We're moving well beyond Excel, and just moving to a more advanced tool set,” Ron Scalzo, senior managing director with FTI Consulting.

In Jordon’s view, AI technologies will at some point help remove human bias from forecasting and lead to more systematic predictions, as well as run multiple predictive scenarios at the same time.

Jordon noted that AI is needed to process through many data sets and help make sense of a company’s own internal data. “Most organizations have a lot of data,” Jordon said. “Are they using that to the best of their ability, utilizing the best technology and ignoring that noise? That’s really where the next three or four years of development will happen.”

Finding the right data to analyze the right way

At the most basic level, AI takes in data and spits out predictions. To get the best predictions, the data fed into them might matter even more than the AI tools themselves.

“There are systems pulling in data which is lying inside the company already, from across their enterprise systems, POS systems, the inventory levels from their stores and all that,” said Meher Dinesh Naroju, director of AI services at Centific. “There are very few companies that actually go outside of this box and get data from sources that are completely unstructured.”

Such data sources include things like social media, which can provide clues about burgeoning market trends. Customers are “actively engaging and leaving opinions and clues about various things they intend to do in the market or a specific category,” Naroju said.

Even images from a retailer’s store cameras might house data relevant to customer behavior in the aggregate, including reactions to certain products, brands and categories. “It’s a long shot, but it can help,” Naroju said.

Other sources, such as weather data, can provide early hints about supply chain timelines and inventory arrivals, he also noted.

Still, all of these data sets have to be put into the context of local and regional cultures and other marks of differentiation.

“It is of the utmost importance to pick and choose what data you need and very clearly segment the data you want to analyze,” Naroju said.

Once a company has the best, most refined and useful data it can get, that’s where AI tools become critical. The technology can derive insights from large pools of unstructured data that “no human being can do in so short a time,” Narajou said.

But even with the most creatively sourced data and advanced tools available, a prediction is still just a prediction.

“If you crack the code on a perfect forecast with the consumer today, you're quickly going to be the richest person in the world,” said Jake Self, vice president of operations for third-party warehousing and logistics company Smart Warehousing.

‘So much noise’

Businesses for generations have relied on the past to help them anticipate the future. That may seem outdated after the pandemic and then inflation scrambled the usual patterns, with volatile cycles piggy backing on each other since 2020.

But for many, historical trends are still the most useful forecasting data. “It’s not especially sexy, but we’ve actually philosophically been using the perspective that history is the best predictor of the future,” Destination XL Group CEO Harvey Kanter told Supply Chain Dive in an April interview.

“I think there's been so much noise in the last three-plus years that the roller coaster we’ve been on is almost impossible to predict,” he added. “I don’t know that the greatest level of AI and ML can predict what the consumer is going to do.”

Kanter went on to note that the apparel retailer still looks at pre-pandemic revenue and historical revenue contributions by day, week and month over the past 10 years, which he said has remained remarkably consistent.

Other businesses simply don’t have the budget to pay for or justify advanced technological tools. Smart Warehousing’s clients run the gamut from small brands operating out of their garages to Fortune 500 companies. For some of the smaller companies looking for replenishment and warehousing help, their forecasting process amounts to “hopes and dreams,” Self said.

For those companies, historical data is by leaps and bounds better than no data. “We've spent a lot of time on our replenishment program, really putting an algorithm in place that learns and understands based on historicals where we're going to need to be,” Self said.

Smart Warehousing can do that having invested in forecasting and replenishment technologies for more than two decades, and with an entire team of specialists dedicated to that one skill set. An algorithm for cold replenishment operations out of Missouri “looked like something out of Good Will Hunting,” Self, referring to the film that features actor Matt Damon playing an unknown mathematics prodigy.

But even with those resources, prediction is still tough in the current environment. “If you're not planning for an element of the unexpected, then you're probably not planning right,” Self said.

Herculean efforts to keep cargo moving over the past few years have left a big imprint on U.S. cargo flows, port and real estate data show.

Shippers, seeking reliability in their supply chains since the onset of the COVID-19 pandemic, have taken major steps to reconfigure their logistics networks. Many diverted cargo over the years, fleeing congestion at large gateways or the risk of labor disruptions at West Coast ports. Others are simply moving closer to their customers, using ports and opening facilities near fast-growing population hubs to lower logistics costs.

Dozens of ports nationwide benefited from this combination of trends. But where exactly did the cargo go? And will the trends stick? Curious for answers, we asked a few analysts and examined data to find out.

Here's what we learned.

1. A rising tide lifts all ports

An import surge during the pandemic led many ports across the United States to notch record annual volumes.

By the end of 2021, the country's top 10 containerports had handled 6.8 million more TEUs than in 2019, according to data collected by Supply Chain Dive. The volume growth was twice as large as what ports had seen the preceding two years, when combined volumes had grown by 2.8 million TEUs from 2017 to 2019.

However, growth among the top 10 ports was not split evenly during the pandemic import surge, as shown below.

Georgia provides one example of how a fast-growing region can affect port volumes. The state’s manufacturing base, low real estate costs, and convenient location for carriers have helped make it a logistics hub, Griffith Lynch, executive director at the Georgia Ports Authority, told Supply Chain Dive.

“Our location is central to the Southeast, we’re the closest port to a major metropolitan area in Atlanta. We have incredible rail connectivity throughout not only the Southeast, but into the Midwest,” Lynch said.

James Breeze, CBRE’s vice president and global head of industrial and logistics research, told Supply Chain Dive many markets in the southeastern U.S. are benefiting from similar trends, where population and economic growth are driving imports.

“You want to be close to that,” said Breeze. “You want to try to save on transportation costs. It's extremely expensive to import everything into Los Angeles, and then trucking it across all the way across the country.”

2. Small ports see big gains

Along with greater volumes, the pandemic-driven rise in imports also brought shippers a big problem: congestion.

Prevalent delays at the nation’s top containerports, which handle over 80% of all U.S. volumes, forced shippers and carriers alike to get creative. Shipping lines altered schedules, while some cargo owners chartered ships. As congestion wore on, many companies also turned to small gateways that were a truck drive away from major ports.

By the start of 2022, for example, FedEx Logistics had started what it called a “congestion bypass service,” selling space on empty containers being shipped to the Port of Hueneme, north of Los Angeles, to shippers looking to avoid delays at the San Pedro Bay ports.

The list of fastest growing seaports and related real estate markets in 2022, mapped below, show how other small gateways like Port Freeport, which is south of Houston, and Philadelphia’s port on the East Coast also won big from cargo shifts.

3. Longshore contract talks affect West Coast volumes

Even as congestion and demand subsided in 2022, cargo diversions did not slow down as many shippers feared another risk on the horizon: potential disruption from West Coast longshore contract talks, which began last May.

Dozens of business groups acknowledged the trend early in 2023, saying in a letter to the president cargo would not return to the West Coast until a deal was acknowledged. The trend, combined with the effects of congestion and general demand shifts, contributed to the gains at ports on other coasts.

But how much of those gains came at the expense of West Coast ports?

More than one million TEUs each year since 2021, according to an analysis from Descartes, and most of that cargo went to Gulf Coast ports. The supply chain solutions firm also found specific commodity groups — electronics, furniture and machinery — made up a large amount of the diverted cargo.

“We would really say [Gulf Coast ports] were the big winner,” said Chris Jones, executive vice president of industry and services at Descartes. “They weren’t used to handling that kind of volume.”

4. Cargo shifts shake up ports’ market share

The confluence of trends over the past three years dramatically affected cargo flows, reshaping the market share of the United States’ top ports along the way.

Some ports shot up in the ranks, including the ports in Houston and South Carolina, which rose in importance as they gained volumes. So, too, did the Port of New York and New Jersey, which became the nation’s second largest port by annual container volume in 2022, after seeing its volumes rise by 2 million TEUs since 2019.

West Coast ports, on the flip side, largely lost market share.

The ports in Seattle and Tacoma, represented by the Northwest Seaport Alliance, and the Port of Oakland were among the few ports that had lost volume in 2022, compared to 2019. And while the ports of Los Angeles and Long Beach gained volume, other ports’ gains chipped away at their combined market share.

Will cargo return?

Because the ports of Los Angeles and Long Beach are among the largest in the country, several analysts predicted the San Pedro Bay ports may gain back some of the volumes they lost over time.

“It’s not easy to shift trade lanes,” Descartes’ Jones said. A shipper’s ability to divert cargo depends on sailing schedules and inland transportation, such as intermodal capacity, as much as on the chosen ports. And since many shippers had their supply chains built from west to east, he said there’s some inertia to “flipping the switch.”

“Some percentage is certainly going to come back,” Jones said. “The part we’re going to watch is what percentage of that is actually going to come back. And it won’t just happen overnight.”

Similarly, CBRE’s Breeze said the Los Angeles and Long Beach ports will continue to play a vital role in U.S. supply chains.

The twin ports together handled 35% of all imports sent to the top twelve U.S. ports despite volume losses in 2022, according to data collected by Supply Chain Dive. And Breeze noted the two ports are still the closest and fastest gateway to bring goods from Asia to fast-growing markets like the U.S. Southwest.

“We're not seeing occupiers move out of Los Angeles and then move into Savannah,” said Breeze. “What they need to do now is keep that space in Los Angeles, but also add a second space in Savannah. That's part of what we call supply chain resiliency.”

Matthew Burgess, vice president of Global Ocean Services at C.H. Robinson, said shippers moving high-value or time-sensitive cargo would be the most likely to return volumes to Los Angeles and Long Beach, once the risk of contract-related disruptions at West Coast ports subsides.

But he also predicted some diversions may be permanent, particularly for shippers who prioritize cost or whose goods are not time-sensitive.

“Overall it does remain cheaper, especially if they're shipping sort of east of the Mississippi," Burgess said.