After the massive supply chain disruptions witnessed in 2021, Shippers are anxious to see a return to normalcy in 2022. This will depend on certain pre-dominant trends that are expected to drive the Supply Chain industry in 2022. These trends include continued disruption, high freight rates, focus on customer centricity, Green supply chains, nearshoring and multi-shoring, and increasing use of digital solutions to optimize supply chain planning.
The unprecedented scale of supply chain disruptions witnessed globally since 2021 had massive ramifications for shippers and consumers alike. While carriers saw their profits shooting to record highs, shippers found themselves staring at significantly higher transport costs, which they were compelled to pass on to end consumers.
Arising primarily from factors like congestion at ports, equipment, and space scarcity and abetted by anomalous events such as the Suez Canal blockage and COVID-induced lockdowns, the consequences were far-reaching and altered the very dynamics of international trade.
After reeling from high freight rates, prolonged delivery times, and unreliable shipping schedules for most of 2020 and 2021, shippers and consumers hoped for different circumstances in 2022, with a corresponding improvement in supply chain integrity.
In this article, we will explore certain pre-dominant trends expected to drive the supply chain industry in 2022 and understand how shippers can better safeguard their supply chains.
Continuation of Supply Chain Disruptions
While most shippers were hopeful of 2022 bringing relative stability to the freight rate market and smoothly functioning supply chains, events since the beginning of the year have dashed hopes of an early return to normalcy.
COVID outbreaks across China and the Russia-Ukraine conflict are the latest factors driving continued supply chain disruptions. Other factors include worsening congestion levels at various ports and trade and container imbalances.
This does not bode well for shippers, as the uncertainty will result in 2022 being an extension of 2021.
Higher Freight Rates and Transport Procurement Spend
Besides supply chain disruptions exerting upward pressure on freight rates, a number of other factors are expected to shore up shipping costs. The most prominent amongst them are higher bunker prices, vessels being chartered at exorbitant rates, and long-term contracts signed at almost twice the historical average levels.
The implications for shippers are higher freight rates across major trade lanes and a corresponding increase in transport expenses.
Lower Customer Satisfaction levels and the Importance of Customer-Centricity
Higher prices and prolonged delays in getting products have adversely affected customer satisfaction levels. Consumers are increasingly prone to switching brands or trying alternatives in the absence of the ready availability of their typically preferred brands.
This represents multiple threats to shippers, who incur higher transportation costs while also facing revenue losses because of stock-outs and will now have to contend with an erosion of their customer base.
Adopting a customer-centric approach has become key for shippers and businesses to improve customer experience and retain brand loyalty.
Green Supply Chains
With growing environmental awareness, consumers increasingly expect shippers to reduce their carbon footprint. Consumers are also willing to pay a premium for eco-friendly products or services. A 2021 study found that sustainability is an important purchase criterion for 61% of American consumers, with over 42% willing to pay a premium for sustainable products. The average premium American customers are willing to pay is 37%, making this a lucrative segment.
This has created a positive cycle, where shippers are actively trying to make their supply chains greener through in-house initiatives instead of simply preferring carriers and transporters with a lower carbon footprint. These initiatives hereunder include better planning, route optimization, lowering fuel consumption, and reducing the number of trips, tonnage, and miles.
An interesting aspect is the emergence of circular supply chains (as opposed to the traditional lateral model), with an emphasis on recycling. A Gartner survey of senior Supply Chain professionals revealed that 51% expect their organizations to increase focus on “circular economy strategies” over the next two years.
Nearshoring and Diversification of sourcing locations
The increased risks to global trade and supply chains have prompted shippers to shorten their supply chains in a bid to minimize delays. This involves bringing their sourcing locations closer to key markets (nearshoring) and looking for alternate sourcing locations (diversification).
Examples of nearshoring include American shippers moving production to Mexico, which reduces transportation distance and cost. Diversification encompasses initiatives like the “China + 1” sourcing policy adopted by many American shippers in the recent past.
Digitalization and use of technological solutions
Shippers increasingly rely on technological solutions and advanced freight and logistics management platforms. The sophisticated functionalities of these systems vastly improve the supply chain planning process and help optimize freight procurement, transport management, cargo flow, and scheduling decisions.
Besides cost savings, these systems also help reduce emissions and contribute to a greener supply chain, which is increasingly important as tighter environmental regulations and controls are being focused on the transportation and logistics industries.
Here at Portcast, we are working on a cloud-based platform for the supply chain and logistics industries. Our users achieved up to 80% time saved from manual tracking of cargo; and cost savings of over USD 500,000 per annum from better inventory management.
It is increasingly likely that 2022 will be a repeat of 2021, with similar challenges confronting shippers. Understanding the key trends explained above will make shippers aware of the complexities and better able to overcome any difficulties. While a lot of the uncertainty derives from macro-level non-controllable factors, shippers who take appropriate actions will emerge stronger at the end of 2022.