PARCEL July/August 2022

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or logistics operations, change has become a constant. The COVID-19 pandemic created major disruptions that still linger today, with 72% of businesses reporting negative effects due to the pandemic. And the global impact of the current regional conflict between Russia and Ukraine sheds light on just how vulnerable all economies are when globally interconnected. Whether inconsistent inventory availability or a lack of transportation capacity, the results of disruptive forces are easy to spot. Stories about container backups at ports, empty shelves in grocery stores, and empty automotive dealer lots have become common fixtures in local and national news. For modern logistics networks highly dependent on precision and reliability, unplanned shocks can leave businesses facing uncertainty, scrambling to secure critical transportation capacity and inventory. Transportation Risks Freight networks are struggling to find enough capacity to go around, which causes backups, delays, extended wait times, and in some cases, rejection of cargo. Just turn on the news and you’ll see that the US container shipping network is backed up, bottlenecked,

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and maxed out. The imbalance starts at ports and ripples through entire logistics networks. To keep up with demand and avoid being slowed down by port backups, companies are shifting goods that would normally be shipped in containers onto trucks, increasing freight demand exponentially. What about parcel? LTL is not the only mode facing overwhelming demand. With parcel moving more business-to-consumer goods, business-to-business freight is getting pushed back to LTL. But LTL carriers are not waiting with excess capacity to pick up the slack. Instead, faced with overwhelming demand, LTL carriers are forced to be selective when choosing what orders to fulfill. Similar to railroads metering intermodal freight last fall and parcel companies implementing higher rates and placing increasingly tighter constraints on which packages they will receive and ship, LTL carriers are taking action, too. They continue to be aggressive with pricing, opting to reject what they perceive to be inefficient freight and levying hefty accessorial charges that go beyond normal pick-up and delivery requirements. Inventory Risks Manufacturers need raw materials and components to make their goods. Justin-time approaches have guided them to

keep inventories lean and hold minimal excess stock in order to maximize efficiency. Even in calmer times, inventory availability can be disrupted due to flawed forecasting, unreliable suppliers that deliver shipments late, shelf-life limitations, product loss, and damage during delivery. But add unprecedented disruption from pandemic shutdowns and other recent shocks, and major manufacturers have had to slash production due to insufficient inventory. While manufacturers are experiencing the pain of limited production, trading just-in-time strategies for piles of excess inventory is not an option. Profit margins that are often less than 10 cents on the dollar mean manufacturers cannot afford to abandon the just-in-time philosophy’s extreme cost-consciousness. Redundancy, Diversification, and Optionality Redundancy, diversification, and optionality are key principles that can equip businesses to navigate transportation and inventory risks. For transportation management, redundancy means building a roster of multiple carriers for LTL, truckload, and parcel, while diversification means equipping yourself with the ability to switch between modes and customize shipping cadence. For inventory management, redundancy comes from securing multiple suppliers across multiple geographies for the same materials, and diversification means adding greater variety in sourcing and management options, including both in-house and outsourced approaches. Together, redundancy and diversification give businesses optionality — the ability to adjust and pivot to different options to keep business moving in the face of changing circumstances. Adapting to Capacity Challenges and Record Pricing In practice, optionality in transportation management can help control costs and maintain business continuity in the face of capacity constraints. Having a strong lineup of carriers across modes can enable shippers to quickly pivot to another carrier and maintain business continuity in the event a load gets