After a period of relative sanity, another wave of shipping congestion
is expected to happen soon. By now weary retailers are familiar with
the drill and are recalibrating supply chains and warehousing and
manufacturing strategies.
At the moment, congestion has improved, according to a report in
Avison Young, with only about 30 ships waiting offshore versus the 100
that lined up during the height of the pandemic.
But hold-ups are expected to continue until at least the beginning of
next year, according to its Sightlines report. Rising shipping costs,
longer transit times, and continual uncertainty have become the “new
normal” for the shipping industry.
“It’s enough to make companies examine their freight options and which
combination of delivery options work best,” according to Sightlines.
Meanwhile, the peak ocean liner shipping season picks up in August for
the back-to-school and holiday shopping seasons and more congestion
could result.
Another problem: Current negotiations between the union representing
15,000 West Coast dockworkers and the maritime shipping companies that
own 29 West Coast ports are disrupting labor.
An overheated market is also impacting shipping contracts, with longer
lead times and a need for advanced planning and procurement driving
many decisions. As with much of the freight industry, shippers and
logistics providers are having to work outside of the typical box to
find new contracting methods and bid processes to minimize risk. Some
are sending bid proposals for specific segments of a project, rather
than the entire project in an effort to work in segments of time in
order to control costs.
Shifting Spend from Goods to Services
Mike Sladich, Stan Johnson Company regional director and partner,
tells GlobeSt.com, “Freight rates dropped in the first quarter of
2022, and we’ve seen consumers shift their spending from goods to
services. This drop-in consumer demand has most recently been reported
by retail giants including Walmart and Target in the form of
oversupply issues as they try to meet pandemic surges.
“Retailers will have to find space for these excess goods to be stored
since most have to order products seasons in advance and haven’t been
able to adjust in a rapidly changing economic environment.
“The need for industrial storage space will continue to be at a
premium in the short-term, and retailers will be more discerning with
their future inventory orders as the Fed takes extreme measures to
reduce consumer demand.
“If the Fed continues to raise interest rates at a historic pace, it
could result in a deflationary period as a mass of seasonal goods
arrive on shelves during the second half of the year and consumer
demand lessens further.”
Reducing Distance to Consumers, Suppliers
Adam Roth, executive vice president, industrial services, NAI Hiffman,
tells GlobeSt.com that due to the rise in transportation costs,
corporations will be forced to combat their length of haul by reducing
their distance to consumers and suppliers.
“This results in more locations closer to population, ideally with a
production component enabling a fast response to consumer demand,”
Roth said.
“What used to be an anecdotal conversation about North American
manufacturing is now a regular topic in the boardroom. As
international transportation becomes more expensive and unreliable,
domestic or North American production becomes more competitive. It
will not be all aspects however some components can be completed
regionally.
“The supply chain is being replaced with the supply web. We are
entering the era of international regionalization and initial stages
of de-globalization.”
Colin Scott, vice president, at worldwide project management and cost
consultancy firm Cumming Group, tells GlobeSt.com, “We have recently
seen a 5% surcharge from suppliers to cover the increase in oil and
petroleum costs. This surcharge is also related to material costs
where oil is part of the material or need, like when dealing with
roofing membranes or freight.
“Also, we are experiencing delays in delivery of major pieces of
equipment which is impacting completion dates and increasing costs to
Owners of these construction projects.”
Making Sure Items Aren’t Sold Twice
Chris Gorney, director of creative sourcing and procurement at
architecture firm RDC tells GlobeSt.com, “Port access, slowdowns, and
widespread price increases continue to affect every part of our
profession even though things have begun to improve.
“How the supply-chain crisis affects our clients wholly depends on
project typology. For F&B retailers, we see kitchen equipment as a
prohibitive lead time constraint. Our team now monitors individual
equipment serial numbers to ensure our equipment isn’t sold twice,
only to later be delivered to whichever location was ready first.
In short, Gorney said his firm is now considerably more conservative
in setting expectations with clients. “To combat this, we now
recommend sourcing exclusively domestic for any projects quicker than
24 months,” he said. “The advantage to outsourcing production and
material purchasing overseas just doesn’t produce the advantage it did
three years ago.”
Demand Will Continue for IOS Sites
Will Nelson, Director of Real Estate Lending, Columbia Pacific
Advisors, tells GlobeSt.com that since the onset of the pandemic, the
global supply chain has suffered as a direct result of labor
challenges, the increased cost of fuel, and uncertainty in the global
markets.
“The limited supply of new and properly equipped warehouse facilities
and entitled outdoor storage space have only further contributed to
the strains on business operations,” Nelson said.
“We pride ourselves as a forward-thinking business and exposure to the
national market offers the opportunity to capitalize on emerging
market trends. We believe the demand for strategically located IOS
sites will continue to grow as the supply chain continues to stabilize
and business continues to heal from the impacts of COVID and
inflationary markets.”