Forecasting and hedging prompted retailers to make the necessary diversions to ship to East and Gulf coast ports. New wrinkles are forcing new considerations in how companies map out their logistics.
“There will be more than enough headwinds in supply chain and transportation,” said Paul Brashier, vice president of drayage and intermodal at Reno-Nev.-based transportation services company ITS Logistics. “There always is.”
ITS, a third-party logistics provider, offers shippers transportation services, including port and rail drayage, along with distribution, warehouse and fulfillment.
The company is looking at opening a third-party logistics center in Dallas and Atlanta next year, with its drayage presence now totaling 33 markets.
It’s a network Brashier said the company began mapping out 18 months ago to get ahead after import tariff increases under President Trump and what he called a “very painful time in supply chain.”
Now, much like it’s always been, service providers can offer shippers assistance when it comes to evolving their logistics planning in a bid to avoid, or at least, reduce risks.
“When you’re diversified in [transportation] mode and your providers are diversified in region and scope, adding [providers] to a lot of strategic decisions, I wouldn’t say makes you impervious, but gives you an edge,” Brashier said.
The executive went on to discuss a number of trends and considerations for shippers as their logistics networks evolve.
1. Near term: holiday, imports
Brashier said the most obvious factor top of mind for the shipping community currently is holiday.
“Right now, it’s about inventory and then making sure that their freight’s where it needs to be so it gets to the consumer for the holidays. That’s our primary near-term focus,” Brashier said.
This is particularly the case as supply chain disruptions, such as labor strikes, pose new problems for the global shipping community amid new pockets of congestion Stateside.
The situation is prompting service providers, such as ITS, to plan for how to help clients handle container congestion in places such as the East Coast as the broader industry braces for an import downturn headed into next year.
“From what we’re seeing from forecasting, the end of this year is going to be super light,” Brashier said. “It’s going to be very, very light on imports and as we get into 2023, probably somewhere past Lunar New Year, we’re going to see year-over-year numbers significantly down.”
The opportunity there for shippers should drayage demand go down is the potential to negotiate more attractive pricing.
Right-sizing inventory and clearing through a glut is another issue facing shippers, particularly as the industry moves toward the end of this year and into 2023.
The inventory issue dragged down retailers such as Walmart and Target earlier in the year as imports didn’t keep pace with the consumer pullback in spending, prompting some companies to scramble to obtain more warehousing capacity, offer more promotions and cancel orders in some cases.
“We’re already starting to see retailers significantly overstocked in their distribution center network, especially on the distribution centers that process all of the inbound or import freight on the coasts,” Brashier said.
That means distribution centers are reaching, if they haven’t already, 100 percent capacity.
“Even where we are right now, there’s probably we’re hearing anywhere from three to six months of inventory sitting in these distribution centers,” Brashier said. “They’re running out of space and because of that they’re having challenges getting [product] further into their distribution center network.”
3. New distribution markets
Capacity constraints when it comes to space to store excess inventory has prompted booms for new real estate markets once considered secondary or tertiary for industrial facilities.
Places such as Ontario and Fontana in California’s Inland Empire, Brashier said, are overstocked, processing imports coming from the ports of Los Angeles and Long Beach.
The market’s pushing shippers to find space further inland from either coast, including markets such as Phoenix and Reno for the West Coast, Brashier said. For the East Coast, that would include Atlanta, central North Carolina, Greenville in South Carolina, Nashville, western Pennsylvania and Indianapolis.
4. Reshoring and nearshoring
Re-tooling manufacturing and bringing it back to the U.S. is a consideration for some, but ITS’ retail clients are mainly looking at what nearshoring brings from a cost and delivery efficiency standpoint.
“You do hear from particular industries, mostly manufacturing, of bringing that back to the U.S.,” Brashier said. “When you look at retail, the cost to move that back to the U.S., I think it’s going to be cost prohibitive, especially in the high-inflationary market right now. I don’t think anybody wants to add additional cost and push that up higher.”
ITS sees a number of companies focusing on Mexico, a move Brashier said switches cargo to transport by ocean and over to land on rail and intermodal.
“That was the paradigm prior to the 2008, 2009 recession,” he said of the land side transportation. “That used to be a huge source for a lot of folks.”
5. AB5 and trucking
On the land side, the Supreme Court’s refusal to hear a case asking that California’s trucking industry be exempt from the state’s Assembly Bill 5 (AB5), also referred to as the gig-worker law, poses new questions for independent contractors in the state. The law creates a three-part test for companies to use in determining whether a worker is an employee or contractor.
Protests from truckers at the San Pedro Bay Ports in July followed by demonstrations at the Port of Oakland, which led to terminal operation disruptions there, should be a concern for shippers, but there’s a lot supply chain and logistics executives at companies are grappling with, Brashier said, making it difficult to stay on top of everything impacting supply chains and transportation.
“Everything is stretched very thin and the only thing that a supply chain director or a VP has to deal with for a company isn’t just drayage,” Brashier said. “There’s a myriad of other things that they have to navigate and it’s hard for them to process all of that.”