July 7, 2022

Another Wave of Shipping and Supply Chain Challenges is On the Way

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 has 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 is 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, Northmarq managing director, 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 the 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.”