Working with suppliers in a difficult logistics market

Working with suppliers in a difficult logistics market

Supply chain procurement and logistics teams are currently facing challenging times, with market prices for freight running at multiples of historic levels.   Container shortages, driver shortages, port closures due to Covid-19 restrictions, port delays due to labour shortages and an increased supplier concentration, are all contributing to historically high market prices.   Even at these prices, securing supply is challenging.  This is impacting both lead times and service reliability. This is, however, probably not the time to launch an extensive RFP to lock in prices and supply for the coming years.

In times where the market is constrained and difficult there are different things however that you can do to manage costs and service.

• Work more closely with current suppliers to understand the drivers of cost increases.  Identify the information that they need to best secure supply on your behalf.  These changes may involve more concrete forecasts, increased visibility and lead time to secure loads.  They may also require more flexibility in routing to get your products to their required destination.
• Work to shorter term pricing agreements and targets (where spot rates are in place), that can be pegged to market conditions.
• Be prepared to shift volumes mix towards suppliers that support your needs.  Be careful, however, about narrowing the supply base in a constrained environment.
• Ensure you communicate the impact of increased market prices internally.  You can then prioritise products and shipments in a constrained market environment.
• Consider alternative routings and modes as the relative cost of ocean freight versus other modes of transport change.
• Work to increase product density through packaging changes or container configuration.  You might also want to consider the option of postponement.
• Continue to manage supplier performance against commitments and work to improve inbound tracking of products.

While there are many short-term factors impacting the ocean freight market, it is unlikely that we will see a return to the low prices experienced in recent years.

Consideration may also need to be given to longer term supply network changes. In addition, price thresholds might drive more local sources to make sense for the business.