Can you recall the feeling of learning to ride a bike as a child? Once you reached a steady pace on flat ground you felt like you could tackle the world. What happens, though, if you had to slow down, stop, or go down or up a hill, then all grace was gone - the bike teetering, steering out of control, braking or changing gears clumsily and trying like mad not to fall. Are the challenges of the global logistics system anything like riding a bike? Well, no, not really. The global supply chain is infinitely more complex, however, when operating at a steady pace, shipping products around the globe is mostly a fluid process. Now, since knocked out of cadence due to the pandemic, this system looks as unsteady as the young rider on the bike struggling to stay upright.
The supply chain has many critical supports for its smooth functioning. In this blog, we’ll briefly examine some of areas currently out of balance and their impacts on small and medium-sized exporters. We will also share industry perspectives on how suppliers can best manage risk amid this difficult climate.
Lisa Waller, Vice President of BDG International, an international freight forwarder, described the current situation this way: “The international logistics system is built for continuous movement and, since the start of the pandemic, there has been an inconsistent flow causing traffic jams that the system hasn’t been able to recover from on its own. A shut-down port across the globe can eventually cause a back-up in Chicago; sometimes it’s hard to connect all the dots.”
Video of the shipping vessels queued offshore key U.S. ports such as Los Angeles or Long Beach has captured the attention of the average American consumer, recently even going viral on social media sites like TikTok and Instagram. A whole complex of conditions either aggravated or caused by the pandemic underlie this very visible situation.
Below is a discussion of a few of the elements at play:
Scott Hoffman, President of Jade International, a freight forwarder located in Folcroft, Pennsylvania shared that while the pandemic sparked the public awareness of these issues, the foundations of this “perfect storm” are rooted in longer-term public and private shortfalls in infrastructure investment in the U.S. There has been lack of employing new technologies, maintaining critical equipment, expanding port capacities, and retaining and building the labor force within this sector.
Recently, the Biden-Harris Administration has brought public and private parties together with hopes of easing short-term bottlenecks, like U.S. port congestion. Within the U.S. Congress, there is bipartisan support for legislation promising longer-term infrastructure investments in improvements of ports, freight rail lines, bridges, and roads. Hoffman noted that while short and long-term efforts in the U.S. may be helpful, ultimately, the supply chain is a global one and “glitches anywhere along the chain will create backups.”
Due to the confluence of these numerous factors challenging supply chains globally, U.S. food exporters are facing high costs and lack of dependability for getting their goods to their export markets.
Peter Brown, Director of International Sales at First Choice Ingredients in Germantown, Wisconsin, says he’s seeing three key challenges in working with their international customers – cost increases, delays, and reduced availability. Their dairy-based flavors often serve as small, but vital ingredients for manufacturers of consumer-packaged goods, giving the product its unique flavor profile. Since the onset of the pandemic, costs for shipping their products have doubled or tripled. Delays in receiving their raw materials have added additional lead time to production and, with freight delays, they could be in the position where the delay on their product could impact their customer’s production schedule, thus raising manufacturing costs. Peter said that the golden rule he was taught when he started in this business 30 years ago was “never to shut down your customer’s production line”. Despite a current high level of uncertainty, First Choice Ingredients endeavors to maintain this principle in working with their customers.
For exporters shipping perishable products via ocean carriers, the delays in the cargo being boarded and off boarded can mean that the product arrives to its destination in unsaleable condition. Due to this, some ocean shippers are turning away bookings for perishable products.
Air freight is also facing pressure as there are fewer flights and more demand as some product that may have been previously shipped by ocean may now go by air. Scott Hoffman of Jade International relayed a recent example where a U.S. manufacturer spent US$40,000 on air freight to ship a necessary input costing US$6,000 as the production line would be shut down without it. For small shipments, the increase in price to ship by air may not be a viable option.
While large multinationals may be able to hire their own ships to ensure their products arrive on time, that’s not an option open to small- and medium-sized food exporters. We turned to some industry veterans to get their perspectives on how U.S. suppliers can best weather the storm and manage their risks:
Peter Brown, Director of International Sales at First Choice Ingredients, a manufacturer of dairy flavors headquartered in Germantown, Wisconsin:
Lisa Waller, Vice President of BDG International, an international freight forwarder in Elgin, Illinois:
Scott Hoffman, President of Jade International, an international freight forwarder in Folcroft, Pennsylvania offered these suggestions related to shipments:
Industry experts predict that the supply chain disruption will likely not end anytime soon. While small suppliers have limited options, we hope that some of these suggestions will help you minimize your risks while maintaining your international customers.
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