Strengthening the resilience of supply chains
How can companies and the logistics industry counter supply chain bottlenecks? An outlook and review of the development of the value chain.
Disrupted supply chains biggest risk to economic growth worldwide. Globally, 89 per cent of companies see disrupted supply chains as the biggest risk to economic growth over the next year and a half, ahead of rising commodity prices and the energy crisis.1
In Austria, with an import quota of around 60 per cent in 2022, the supply chain problems are having a huge impact on imports. Last year, import containers in particular were jammed in the ports because they could not be transported further due to a lack of freight capacity, road and rail construction sites, severe weather, staff shortages and strikes.
Austria is dependent on imports of goods, especially for machinery and vehicles, spare parts and chemical products. The difficulties caused by the lack of preliminary products, which account for about 42% of total imports of goods into Austria, and basic materials from abroad have already made production in companies more expensive. Added to this are increased freight and transport costs, which have to be absorbed additionally. Approximately 64 percent of the SMEs surveyed in Austria on the effects of supply bottlenecks and material shortages stated that they were only partially able to pass on the price adjustments to their customers.2 Yields are falling.
Geopolitical challenges and their impact on global supply chains
The list of current geopolitical challenges is long: lockdowns due to the pandemic, the war in Ukraine, strikes in the logistics industry, and natural disasters such as the tragic earthquake in Turkey and Syria are rupturing already strained supply chains. The disruptions in the global flow of goods due to the close and sometimes inflexible interdependencies in terms of means of transport, routes and suppliers pose major challenges for the logistics industry and companies. In addition to delivery bottlenecks and rising costs, this also makes it almost impossible to reliably plan the entire delivery processes.
As a shipping partner of B2B companies and as a vital part of the supply chain, we are primarily focused on the following questions: What are the biggest challenges facing the logistics industry? What measures can companies take to respond to supply chain problems in order to secure both regional and supraregional supply chains? What role do CEP service providers play in ensuring fast and reliable delivery? How can digital transformation contribute to securing supply chains?
Transport management: logistics industry suffers from capacity bottlenecks and price pressure
Logistics keeps the economy running. Because if logistics stands still, the economy stands still. A standstill has an enormous impact on both the logistics sector and companies. Without logistics, everything from energy supplies and food to urgently needed spare parts or medicines will not reach companies.3
Container congestion causes delays in the supply chain
In logistics, the supply chain is a network of modes and means of transport that ensures the uninterrupted movement of goods from origin to destination. If there are disruptions, interruptions or even a supply chain collapse, this triggers a chain reaction in the entire logistics value chain.
We have all had to experience this in recent years: Goods are piling up on ships in front of container ports and storage capacities both in ports and at freight forwarders are at the limit. This is because, many goods have to be stored temporarily when there are delays in one part of the supply chain. This, in turn, leads to delayed onward transportation via rail and truck to the hinterland. As a result, just-in-time deliveries can turn into a risk, as the goods are delayed even as they arrive.
Air freight industry records strong price increase
The air freight industry4, on the other hand, is operating in a very competitive price environment with increased fuel prices and (freight) capacity. The challenge here is to manage a balance between long and short-term capacity in a volatile market environment. There is a need to balance shippers’ desires for short-term business on the one hand and airlines’ desires for longer contracts on the other. A constant issue is also the congestion of transport vehicles for onward transportation from the cargo areas of airports.3 A constant issue is also the overloading of transport vehicles for onward transport from the cargo areas of the airports.
Personnel bottlenecks increase pressure on strained supply chains
In addition, staff shortages in both industries are impacting the reliability of delivery times. There is a shortage of ground staff to handle air cargo, aircraft crews, and delivery vehicle personnel. Staff strikes at carriers such as Deutsche Post and dockworkers add to the pressure on global supply chains and lead to increased prices for all transportation services.
Supply chains, a global stress test
The market is in transition and remains very dynamic. Companies must continue to expect possible capacity bottlenecks and price fluctuations, even though transit times on many transport routes have recently improved again. Transport service providers and forwarders must adapt to the respective market conditions and examine various solutions, such as alternative transport routes, partnerships or consolidation of shipments.
What measures can companies take to respond to the supply chain problems?
The supply chain problems have led companies to critically review both their business models and their (shipping) processes within the supply chains. For example, in many companies, business relationships are under the microscope. Companies are considering which target countries to invest in and which partners to work with. The top 3 reasons to find new or additional suppliers are cost optimization, risk diversification in case of failures, and easier access to urgently needed raw materials.
Companies focus on supplier diversification
One consideration of companies in Austria is to seek new business partners in Western countries or neighboring countries. This reduces dependence on suppliers from faraway China, among others. With the expansion of local production facilities, so-called “nearshoring”, shorter distances replace the now insecure supply from overseas. 45% of small and medium-sized enterprises in Austria try to rely on regional suppliers as much as possible, but 36% said that foreign suppliers offer better conditions.4 Purchasers in particular want to source goods from places that can also be reached by rail or road in an emergency. However, Austria in particular benefits in global trade from China, its second most important trading partner. In addition to its dependence on China, Austria as a business location faces its own challenges, such as high energy costs, urgently needed investments in digitization and a persistent shortage of skilled workers in all sectors.
Higher warehouse inventories prevent supply bottlenecks
Supply bottlenecks for urgently needed spare parts and goods have led to an increased build-up and reduction of inventories in manufacturing companies. This is a turnaround, because until a few years ago the motto was to keep inventories and the associated warehousing costs as low as possible. As a result of experience, many companies no longer rely solely on just-in-time deliveries, but have instead expanded their inventories, thus accepting higher warehousing costs.
CEP service providers close shipping gaps
In terms of speed and reliability, CEP service providers (DHL, DPD, FedEx, UPS and many more) play an important role in the stability of supply chains, especially in times of crisis. Instead of shipping large volumes from A to B, as was previously the case, it can make sense for procurers in companies to send smaller lot sizes by parcel shipment in order to counteract supply bottlenecks. Because of the shipping volume, they are faster and also assure their customers of guaranteed transit times. Companies can send goods weighing 2kg – 70kg as parcels, which is particularly suitable for sample and partial deliveries as well as for urgently needed spare parts. In this way, any transport gaps within the supply chain can be closed, transit times reduced, and just-in-time delivery secured after all. A B2B shipping platform that displays all CEP service providers at a glance can provide support and greater flexibility here. This enables shippers to quickly identify alternative transport routes that work and, if necessary, to rebook them flexibly.
How can digital transformation help secure the value chain?
As mentioned, companies can diversify by entering into new partnerships, relocating their production, and expanding their storage and transport capacities to avoid further bottlenecks in logistics and warehousing. At the same time, however, they should also be able to readjust themselves in order to be able to react in a targeted manner to failures and fluctuations.
Transparency in the supply chain increases flexibility
Transparent collaboration is crucial for flexible planning in order to save costs in the long term, minimize resources within the company and ultimately remain competitive in a global environment. To this end, digitization of the supply chain and all related processes in transportation management, from procurement to shipping, is essential for greater transparency. Studies and surveys found that many companies intend to increase their investments in technology in the next 12-18 months. With the advent of digitization, a wide range of processes can then be automated, from planning freight capacity, obtaining quotes and booking, to document management with a view to customs clearance and insurance. In addition, a direct connection to the transport management of the logistics or shipping service provider can be established.
Supply chain issues: Diversification and transparency are top priorities
In summary: Companies face supply chain problems in very different ways, depending on their industry and capabilities, but there is one thing everyone agrees on: alternative procurement and distribution concepts must be found to minimize supply chain problems and make supply chains more resilient.
Recent years have shown that, in addition to the economic aspect of (cost) efficiency, other criteria that increase supply chain resilience are becoming even more important for companies: choice and control over delivery, more transparency with regard to transport costs, and reliable information on (functioning) shipping routes. Investing in the diversification of suppliers, production, and transport or shipping partners can also help companies identify cost-saving potential early on and make faster, more flexible decisions.
1) Capgemini Research Institute, Study: Corporate Investment 2023: Supply chains and technology ahead, 16.01.2023
2) Creditreform. (28 January, 2022). What impact have supply bottlenecks and material shortages had on your company in the last six months?
3) Air Cargo News. Air cargo outlook: challenging market ahead, 06.022023
4) Federal Ministry for Digitalisation and Economic Location, 2021. Resilience and Relocalisation: How SMEs can better manage crises.