When supply chains run smoothly, the economies they support do too.

But when even the smallest disruption occurs, supply chains can quickly turn into the equivalent of a daisy chain — where one event sets off a cascading impact down the entire logistics value chain.

Experts fear that this is what could happen up and down the East Coast as businesses and shippers try to manage the fallout from the March 26 collapse of Baltimore’s Francis Scott Key Bridge as a result of a cargo ship collision.

“The impacts to the local region will be significant for several months or years until the bridge is rebuilt,” Lisa Anderson, founder and president of LMA Consulting Group, told PYMNTS in an interview. “Even once the port is reopened, trucks will continue to be re-routed around Baltimore, adding time and cost to trips from the port and through the Baltimore area.”

The Port of Baltimore itself remains closed to ships moving in or out until further notice, and officials are now faced with the task of removing the thousands of tons of steel and concrete clogging Maryland’s Patapsco River, while at the same time navigating the logistics of rerouting Baltimore-bound ships to other ports up and down the eastern seaboard.

The U.S. Coast Guard opened a temporary alternate channel Monday (April 1) for vessels that are helping with the cleanup effort.

“The most critical timeframe is clearing the bay to reopen the port, which could take weeks,” Anderson said. “This will impact the ninth biggest port in the U.S. and 3,200 sites involved in logistics, distribution and warehousing nearby the port and bridge as well as local businesses.”

Read more at PYMNTS site.

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The collapse of the Francis Scott Key Bridge and the closure of the Port of Baltimore this week could have far-reaching implications all the way across the country for the ports of Los Angeles and Long Beach, according to several experts.

The bridge collapsed Tuesday about 1:30 a.m. when the Dali, a 985-foot-long cargo ship en route to Sri Lanka, crashed into one of the bridge’s support pillars shortly after losing power. It sent a majority of the bridge plummeting into the 50-foot-deep Patapsco River below, claiming the lives of at least two construction crew workers on the bridge; four others are missing and presumed dead.

In the short term, the closure of the Baltimore port will increase costs for businesses and consumers on the East Coast, said Lisa Anderson, founder of LMA Consulting Group, which specializes in supply chains and manufacturing. That’s because the container ships on their way to Baltimore will be diverted to nearby New Jersey, Pennsylvania and Virginia ports, and the products they’re carrying will have to change the arrangements previously made to be transported to wherever they need to go, Anderson said.

The closure will also affect warehouses and other logistics services, which will have to decide whether they want to switch to other facilities while officials work on reconstructing the bridge and reopening the port, Anderson said. Trucks will also have to be diverted from the Key bridge, meaning they’ll either have to go around the city or pass through tunnels, which have height, width and hazardous materials restrictions.

Longer term, ports in Los Angeles and Long Beach could see more activity, especially with drought conditions reducing the capacity of the Panama Canal, Anderson said. The shipping route from northeast Asia through the Suez Canal and to the East Coast of the U.S. has also become perilous because of the war in Gaza. The Iran-backed Houthis in Yemen have been attacking commercial ships going through the Suez Canal, resulting in shipping lines having to divert their vessels around the southern tip of Africa.

What that means is that the ports of Los Angeles and Long Beach will see an increase of volume, translating to more activity for trucking companies as well as for warehousing and rail systems, Anderson said.

“That’s a positive, but we also need to make sure it’s not gonna become a new bottleneck,” she said. “These folks are adding time to their orders so they have to find new routes and we wanna make sure we’re prepared to service this additional volume.”

The closure of the Baltimore port could also lead to a “nominal” uptick in costs for the products that typically arrive there, such as cars and light trucks, Anderson said. The costs of diverted transportation will eventually be passed on to customers, but it’s not expected to be significant across the U.S., she said.

Read more at the LA Times

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The Francis Scott Key Bridge, once the second-longest continuous truss bridge in the U.S., now lies partially submerged in the Patapsco River after a catastrophic cargo ship collision this week.

“Will this Baltimore situation add a bunch of cost to the global supply chain? Well, no,” said Lisa Anderson, president of LMA Consulting Group. But with additional global complications, costs could compound.

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The Francis Scott Key Bridge, once the second-longest continuous truss bridge in the U.S., now lies partially submerged in the Patapsco River after a catastrophic cargo ship collision this week.

Two people were injured, and six others presumed dead. The ship and mangled debris from the bridge have formed a wall in the water, indefinitely blocking access in and out of the Port of Baltimore, the top domestic port for cars and a major hub for other goods, such as forest products, farm equipment and sugar.

Among the questions around what happens now is what the accident means for shipping and the economy.

The port handled a record amount of cargo last year. While President Joe Biden has said he intends for the federal government to rebuild the bridge, and called on Congress to support that effort, the port is directly responsible for about 15,000 jobs and generated $4.7 billion in economic value to the state of Maryland.

The bridge’s collapse stranded at least 10 vessels in the water and ships outside the blockage have had to reroute to other East Coast ports, such as Norfolk and New Jersey. For global shipping, this comes at a time when companies are contending with route disruptions along the Suez and Panama canals.

Here’s how the Key Bridge collapse may affect the port’s operation, the local economy and international supply chains.

• What role does the Port of Baltimore play?
• How long will shipping be suspended?
• Will supply chains be interrupted?
• What are potential long-term effects?
• What about local and regional effects?

Read more at PBS News Hour site.

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The Francis Scott Key Bridge Collapse

Horribly, a container ship collided with the Francis Scott Key Bridge, and much of the bridge collapsed. Cars went into the water, and it has become a deadly disaster. Our thoughts go out to the families impacted.

As we commented in Inc., from a supply chain point of view, it has caused significant near-term impacts and extended disruptions in the region. Transportation bottlenecks immediately emerged. Container ships, trucks, and rail were all impacted.

Port Impacts

It just so happens that the collapse of the bridge cut off the Baltimore port by in essence setting up a wall between the port and the Chesapeake Bay. The bridge’s collapse means that for the foreseeable future, it won’t be feasible to get to the container terminals. The port is likely to remain closed for several months and traffic diverted. This port is the 5th largest container port on the U.S. East Coast and the busiest port in the region for handling roll-on/ roll-off cargo such as cars, light trucks, construction and farm equipment, and more. The port also handled sugar, furniture, home appliances, coal, and other items.

Near-term, container ships will be diverted to nearby ports such as New Jersey, Pennsylvania, and Virginia ports. There will be delays, congestion, and diversions. Most likely, these delays will be relatively short-term as they are absorbed to nearby ports; however, it is another disruption in the global supply chain with short-term and long-term implications. As we communicated in a recent article on the impacts of the drought conditions in the Panama Canal and container ship attacks in the Suez Canal (both impacting shipments from Northeast Asia to the East Coast), this is an additional disruption at the East Coast ports. Thus, some shippers are likely to divert to the West Coast ports and rail or truck product to the East Coast.

Regional Logistics Impacts

There are 3,200 sites involved in logistics, distribution and warehousing nearby the port and bridge. Thus, there will be severe near-term disruption in the region. The timing will be heavily dependent on how quickly the debris can be cleared to restore safe passage in the area. Some experts believe this task could be accomplished in the next 1-2 weeks whereas others say it could take months. With that said, with the ports closed and diversions underway, it will take time for the supply chain to level out.

Trucking Impacts

According to the American Trucking Associations (AMA), almost 4,900 trucks travel the bridge each day, with $28 billion in goods crossing each year. There are alternate routes; however, there are issues associated with several of the options. For example, the two tunnel options to cross Baltimore harbor cannot carry hazardous materials, and there are height and width restrictions on the tunnels. Thus, trucks will be diverted on I-695 on the western side of the city. These diversions will cause additional delays, diversions, and cost.

Industry Impacts

The auto industry will experience the most significant impacts because the Baltimore port is the top American port for the import and export of cars. BMW, Volkswagen and Mercedes-Benz have facilities close to the port to handle vehicle shipments, and Mazda is had the highest dollar value of imports. The auto industry supply chain will be resilient but it will be another disruption after finally returning inventory to pre-pandemic levels.

The energy industry might experience disruption as well. There could be a disruption in coal supplies, gasoline and ethanol. The oil industry will have to find alternate routes for barge deliveries and/or pursue alternate modes of transportation (trucking). CSX transports imported coal and is communicating expected delays.

SIOP & Backups

It is quite clear that a single backup is no longer sufficient. You must proactively plan for likely risks and think 3 steps ahead of your competition to succeed in today’s global supply chain. SIOP (Sales Inventory Operations Planning) is a process to align demand with supply. It provides visibility across the supply chain so that companies can take proactive actions to mitigate risks, source backup sources of supply, and pivot with changing circumstances. For example, there is significant regional manufacturing, reshoring, and nearshoring occurring. To learn more about these strategies, download our complimentary book, SIOP: Creating Predictable Revenue and EBITDA Growth.

If you are interested in reading more on this topic:
How Do You Rate in Your Supply Chain?

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Lost Volume at the West Coast Ports

According to PMSA (Pacific Merchant Shipping Association), the five big West Coast ports have lost volume – 702,083 fewer loads and empties were handled in January and February 2023 than in the same period pre-pandemic in 2019. This equates to close to a 16% reduction. Specifically, the Port of Long Beach was off by 18.7% from January 2019 which was the lowest volume of inbound loads since January 2012 (except for 2015 when labor disputes created issues). The inbound volume is even worse at 20.6% at the San Pedro Bay port complex. These are significant differences, and successful clients are paying attention. Instead of responding, these clients are creating these changes.

Volume Is On the Move Eastward

PMSA reported that the East Coast ports grew business by 5.6% since 2019, surpassing the West Coast ports volume. The Gulf Coast ports started from a small base but grew by 49.1% since 2019. Clearly, volume is on the move eastward.

What Has Caused the Move?

The smart are reconfiguring their supply chain to succeed in the year’s to come. Specifically, we see smart executives moving volume for the following reasons:

• Threat of port strike / labor disputes: Executives are worried about the potential for a strike and/or other negative impacts from labor disputes. According to the Wall Street Journal, labor tensions are increasing in stalled talks at the West Coast ports. There are several issues being negotiated, and the two parties still seem to be far apart. For example, automation is a major issue in labor negotiations. On the other hand, US ports rate low for automation overall. According to APM Research Lab, the US ports are the lowest ranked ports in total port hours per ship call whereas Saudi Arabia and China are in the highest ranked group.
• Service failures during the pandemic: Executives remember the agonizing service issues and delays they experienced during the pandemic, and they are taking control of their customer experience. Some are re-routing goods through the Panama Canal to the East Coast ports, others are shipping via air, etc.
• Inventory gluts: Purchasing groups panicked when service failures, delays and shortages were commonplace, and overordered. On the other hand, it wasn’t “all their fault” because demand signals were showing ever increasing volumes as customers also thought JIC (just-in-case) was a much better strategy than JIT (just-in-time). Unfortunately, unless you follow proactive, intuitive SIOP (Sales Inventory Operations Planning), also known as S&OP and specifically demand planning processes, you will order the “wrong” products. Thus, there is an inventory glut of the “wrong” products in the “wrong” place at the ‘wrong” time.
• Reconfiguring manufacturing operations: As clients realize that they can no longer be dependent on China and other non-friendly nations to supply critical manufacturing goods, they are reconfiguring and reallocating production. Volume has been moving to Vietnam for many years, and India has been gaining steam in recent years. Thus, products have been moving across the Indian Ocean, through the Suez Canal, potentially stopping in the Mediterranean or Europe, and across the Atlantic to the East Coast. Others are taking matters into their own hands and reshoring production to the US and near-shoring production to Mexico / Latin America.

What are the Successful Doing?

The successful are taking control of their supply chain and proactively figuring out how to pivot and evolve to ensure growth and success. Thus, they are in essence creating this disruption; not responding to this disruption. On the other hand, moving volume isn’t always the best option. Review your situation, understand what your ideal customers will need, and CREATE a supply chain to serve your customers successfully, profitably and with the least amount of cash (inventory) tied up unnecessarily.

Our best clients are reallocating manufacturing, reconfiguring logistics, innovating and creating completely new solutions, leveraging technologies in new ways, and flipping the status quo on its head. What got you “here” (in the last few decades) will not “get you there” (to a successful future) anymore. The world is changing, and the resilient are pivoting, reconfiguring, and thinking differently to stand above the crowd.

Please keep us in the loop of your situation and how we can help your organization stack the deck to not only survive but also to be prepared to take advantage of the vast opportunities to come in the next several years. One great way to start your journey is to roll out a SIOP process to better navigate the volatility and uncertainty. Learn more about how to use SIOP to succeed during volatile times in our new eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. Download your complimentary copy.

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According to the The Journal of Commerce, the West Coast ports are losing volume. The West Coast share of imports coming from Asia is down from 61.1% in 2021 to 58.8% in 2022 while the East Coast and Gulf Coast ports rose. According to the JOC, the ILWU contract negotiations are causing this change although there are concerns about drayage and rail as well. For example, the inland congestion has created significant service disruptions for customers across the country.

This is in addition to the lower volumes coming from China due to the Zero-COVID policies in place during much of 2022. Although China opened up late in 2022 and should increase after the Chinese New Year, COVID is running rampant, creating additional supply chain complications.

Drayage Concerns Related to the West Coast Ports

There are also concerns about drayage truck shortages due to the clean truck regulations taking affect in CA that requires trucks to have engines from 2010 or newer. This regulation will impact about one-fifth of the existing fleet from California’s ports. Not only has there been a HUGE backlog of trucks (refer to the section Transportation: Unprecedented Backlog of Tractor-Trailers in our eBook Thriving in 2022: Learning from Supply Chain Chaos) so that you would be challenged to purchase a truck if you wanted to purchase one, but most drayage truck owner operators are evaluating whether to upgrade at this point in their career.

Drayage trucks can last 10-20 years and are expensive, and so upgrading sooner negatively impacts returns on this significant capital investment. Additionally, drivers are trying to figure out how to navigate California’s worker classification law known as AB5. Currently, thousands of drivers are operating as independent contractors would have to be reclassified as employees or the way the two parties interact would have to change. Neither side is “happy” across the board as the companies don’t want to incur ongoing costs, and the drivers enjoy flexibility. Companies and drivers are deciding whether to continue in the industry and how to evolve.

Technology & Automation

The US ports are behind the curve when it comes to technology and automation. That is an issue because we will be limited with growth based on people. It is also inflationary when it comes to wages and the union negotiations. Only 4 of the 360 commercial ports in the US have at least semi-automated terminals. That is a sad statistic! Three of the four semi-automated ports rate low for overall efficiency compared to both automated and unautomated ports in other countries. In fact, according to the container port performance index, Savannah, GA, Los Angeles, CA, and Long Beach, CA ports are in the unfortunate category of lowest ranked ports (by total port hours by ship call).

It seems quite possible to stand out from the crowd by taking advantage of automation and technology. We’ll see what happens. What is certain is that it will reshape the future of supply chains.

Manufacturing On the Move

Last but not least, manufacturing is on the move. Executives have figured out it doesn’t make sense to “count on” China for quick deliveries without supply chain disruption, bloated inventories, and /or volatility in service and cost. More importantly, there is significant risk in relying on China for products related to medical, healthcare, and pharmaceuticals. Look no further than the baby Tylenol and Motrin shortages, let alone medications for serious diseases. I recently spoke on a medtech panel about reshoring, nearshoring, and friendly shoring, and there is quite a lot of movement.

Similar to healthcare, there are concerns about items related to national security. These worries can relate to commodities, oil and gas production, computer chips, and food. The proactive are quietly taking control of their supply chain so that they can serve customers and ensure their future.

As manufacturing moves to the US and Latin America if you are located in North America (and similar movements related to Europe), logistics and port volumes will change. Where will your supplies come from the future? You also should consider scale. As attractive as certain countries are in Central and South America to support North American consumption, the scale and scope will make a BIG difference. China has significant scale. You won’t replace China with Costa Rica as an example although Costa Rica has become prevalent in high tech industries.

Production could also move to India; however, there are infrastructure issues in India. As executives figure out what makes the most sense for their situation, manufacturing and supply chains will be reshaping. Get in front of these trends instead of getting rolled over by them!

Impacts on Logistics, Ports

As supply chains change and evolve, the impact on ports will change and evolve. Additionally, what the ports choose as a path forward can impact executive decisions. What certain is that VUCA (volatility, uncertainty, complexity, ambiguity) will be the theme for the next few years. Take control of your future and reshape your business and supply chains before they reshape you.

Please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Several of these types of topics are included in our eBooks. Download your complimentary copy.

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Supply chain expert Lisa Anderson says the global system has never been more volatile.

“It’s an unprecedented situation because demand fluctuation has been so dramatic,” says the president of LMA Consulting Group, a California-based supply chain management consultancy.

Click here for the full story.

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The situation is not good. From Southern California to the Midwest to Ireland or Latin America (let alone Asia), the supply chain remains in chaos. We’ve attended several conferences, worked with clients, and collaborated with colleagues and trusted advisors related to e-commerce, logistics, manufacturing and the supply chain, and our takeaways aren’t telling a good story:

• Bullwhip effect/ roller coaster ride: The supply chain remains out of alignment, spurring further disruptions as companies try to figure out how to get the right products to the right place at the right time while not losing their shirts in terms of profitability and cash flow. The volatility in demand and supply throughout the supply chain is unprecedented.
• Cargo backup-up’s, historic dwell times, & empty containers everywhere: Empty containers remain a BIG issue, creating chassis shortages and furthering misalignment. There are also rail delays, labor shortages, productivity issues, port congestion, and a host of other issues.
• E-commerce is insane: E-commerce is expected to grow to 26% of retail sales by 2025 and is already overwhelming transportation/ last mile, warehousing (no space is available), labor and/or automation needs (as it is far harder to ship pieces than boxes), etc.
• Gas prices: Not only is inflation running rampant, but increasing gas prices are driving truck drivers out of business. In the last two days, I’ve heard from multiple sources that truck drivers are hanging up their hats especially those supporting the agriculture industry as they cannot stay in business with the price increases.
• Regulations driving businesses out: In high-regulatory states such as California, there are dizzying regulations coming down the pike. Worse than the number is the feasibility of the supply chain to meet the standards by the due date. In many cases, even though there has been tremendous progress and investment, there is no way to meet the regulations. For example, truckers will be dropping like flies as regulations take place as early as 2023. Whereas autonomous and electrical vehicles are progressing but not nearly fast enough to meet these deadlines, and it won’t matter anyway as the appropriate infrastructure to support progress cannot keep up.
• Shanghai lockdown: Shanghai has been on lockdown for months. Although it is starting to open up, there is an overload of container ships waiting at port. A tsunami will be on the way to U.S. ports shortly.
• L.A. & L.B. port labor negotiations: Although L.A. and L.B. were ranked least efficient, there are concerns of more demands from the labor unions as volumes have been robust. The situation could get worse with the labor negotiations, further delaying cargo at our busiest ports (supplying 40% of the products to the U.S.). Customers are moving freight east in case negotiations go awry; however, it is creating a backlog at other ports and making a tiny dent in the incoming tsunami.
• Russia-Ukraine war impacts: Any products and agriculture items produced in Russia and Ukraine are going into a state of chaos.
• Baby formula shortages: Although the Abbott plant is starting to come back online, there are no quick fixes to suddenly produce (or ship from Europe and Australia) 3-4 months of production (equating to 40% of U.S. volume). It will take time.
• And now there is a tampon shortage: Due to shortages of raw materials, labor, and other factors, the store shelves are sparse in the tampon aisle, spurring panic buying of favorite brands, which further exacerbates the issue.

And the list goes on….. There is no end in sight. Successful companies will not wait for the global supply chain to realign. Unfortunately, you are only as successful as your weakest link in the supply chain.

The Strongest Link in Your Supply Chain

The successful companies will not only strive to be the strongest link in your supply chain, but they will ensure that the weakest link doesn’t send their customers to the competition. You have a once-in-a-lifetime opportunity to secure your position as a market leader and thrive for years to come, if you choose to take advantage of the opportunity and start to act NOW. The proactive, innovative, and collaborative companies that see opportunities that others miss, invest (in people, processes, technologies, trusted advisors, equipment, etc.) when others don’t, and are willing to take smart risks when others shy away will be successful. Our belief is that these companies will lead for decades in the future. Are you interested? If so, become the strongest link in your supply chain and take control of your future.

How Do We Take Control?

There are several strategic decisions you should be evaluating immediately:

• Which customers do you want to keep? Which do you want to eliminate?
• Which customers do you want to target?
• Which products and services do these target customers need currently? More importantly, what will they need in 1, 5, and 10 years?
• Are you innovating and collaborating with customers?
• How should these strategies translate into pricing and priorities?
• Which products do you want to control? Which are strategic to your customers?
• Which new products and services should you design and develop to support these needs?
• How can you reduce what took 4 months to 4 hours? (across the board)
• Which products should you rationalize?
• Where should you locate your plants to best support your business?
• Should you reallocate production among your plants?
• Where should you position inventory and capacity in your end-to-end supply chain?
• Which suppliers are considered strategic? Where are they located? Are you treating them as a vendor, supplier, or partner?
• Are you innovating and collaborating with suppliers?
• What risks should you evaluate and address in your end-to-end supply chain?
• Should you add, consolidate, or change your distribution network to support your customer needs and to maximize profit?
• Should you insource or outsource?
• Who are your transportation partners? Are you aligned in supporting future customer needs?
• Which systems and technologies do you need to support your future customer and supply requirements?
• Are you thinking 3 moves ahead as it relates to your employees? Those with talent will thrive; those without will struggle and decline.
• Do you have a Sales & Operations Planning process (S&OP), also known as SIOP (adding inventory into the title) to align your demand with supply, and most importantly, to keep your demand and supply aligned with growing revenue and EBITDA.

Don’t spent months evaluating; however, don’t jump to decisions and waste precious talent and resources. Instead, perform a rapid yet broad (deep and wide) assessment of your opportunities, your current position, your target position, and the critical priorities to ensure your strategy comes to fruition. Typically, plans don’t fail in formulation (although we are in a high stakes time frame), they fail in implementation. What resources will you need to ensure success?

Please keep us in the loop of your situation and how we can help your organization thrive during these times of volatility and disruption. There will be more winners created than at any other time than since emerging from the Great Depression. To gain additional ideas and insights on how to best navigate these volatile times and thrive, read our new eBook Thriving in 2022. Learning from Supply Chain Chaos. Download your complimentary copy.

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