“Absolute Chaos!” That’s how one sales rep described it. “Maddening!!” Another proclaimed! These types of conversations are not the norm in our field – or at least they did not use to be. Ours is a profession that embraces organization, relies on commitments being fulfilled, and demands specificity. For us, it’s all about timelines, coordination, and connections. Simply put, we perform at our best when we have visibility into the entire supply chain.
So, with so much coordination, timely information, and rigor needed, what’s causing all the frustration? “Disruptions!” Unforeseeable, unpredictable, and unavoidable disruptions. They are not going away any time soon and at Leahy-IFP, we are proud of our team’s efforts to mitigate these disruptions and thankful for our partner carriers, vendors, and suppliers for helping us to successfully navigate the unknown together.
Current State: It May Be Different Tomorrow
No one likes to be the bearer of bad news, but that is exactly what logistics and supply chain departments face — each living an unpredictable Ground Hog Day. Another late truck. Another missed critical inbound. More container delays from overseas. More congestion at ports. Increasing driver shortages. Increasing intermodal surcharges. Labor constraints and warehouses bursting at the seams. Couple all of this with China’s zero-COVID strategy that recently closed the port in Shanghai, the war in Ukraine, and soaring diesel prices — one may ask: “What could happen next?”
This is the world we live in. The days of JIT inventory at warehouses are gone. No longer can we depend on the elasticity of the supply chain. In fact, it’s turned to rigidity and unpredictability. What was once an orchestrated movement across multiple touchpoints is now an abstract artform – where teamwork, relationships, resiliency, and the ability to adapt reign supreme.
Thankfully, at Leahy-IFP these are our core strengths —ones that have allowed us to make amazing connections amidst the chaos.
Continued Strain and Rising Costs
Here are some key drivers that underscore the pressures we continue to face:
Industrial Absorption at Highest Levels – Absorption is the net change in occupied space between two points in time.
The U.S. industrial market ended 2021 with record-setting demand… On a year-over-year basis, Q4 2021 registered a 47.9% increase above the 99.7 msf absorbed in Q4 2020. This brought 2021’s absorption total to 532.6 msf, the most absorption recorded in a single year since record-keeping began.
Source: Cushman & Wakefield
Warehouse Rent Rates Rising
Aggressive competition for space further pressured rents in Q4 2021, increasing 9.5% year-over-year to $7.39 per square foot (psf). Warehouse/distribution rents rose 6.6% during the same period. Rent growth has been consistently accelerating each quarter in 2021, indicating strong momentum going into 2022.
Source: Cushman & Wakefield
U.S. Truck & Trailer Orders – Class 8
“There is a severe shortage of new and used trucks and the economy continues to generate steady freight growth in all segments … Additionally, the stable February order total is not good news for future production. By not booking more orders, OEMs are signaling that the supply chain remains clogged, and they don’t anticipate being able to ramp up production in the next couple of months.”
Source: FTR Transportation Intelligence
Diesel Prices Soaring
As of March 28, 2022, the U.S. average diesel price was $5.18 per gallon. This is $2.02 higher than the same week last year.
Source: U.S. Energy Information Administration
Truckload Linehaul Index (TLI) – This index is an indicator that provides trends in baseline truckload prices.
Strong freight demand and significant capacity limitations are continuing to press truckload rates higher. As intermodal network congestion gradually eases over the course of 2022, a reversal to a shorter length of haul will likely add upward pressure to this index above and beyond market rate increases.
Source: Cass Information Systems
U.S. retail e-commerce sales for the fourth quarter of 2021 were $218.5 billion, an increase of 1.7% from the third quarter of 2021. The fourth quarter of 2021 e-commerce estimate increased by 9.4%. E-commerce sales in the fourth quarter of 2021 accounted for 12.9 percent of total sales.
Source: U.S. Census Bureau
Facing challenges and turning them into opportunities.
As we continue refocusing our mindset and adjusting to changing market conditions, it is imperative not to hit the panic button, however tempting or justifiable it may seem. We are dealing with never-before-seen global supply chain disruptions, yet responding to these unique challenges needs to be swift and decisive. Pressure-packed and unpredictable, we start each day with a positive point of view — and that’s due to our extraordinary people and culture.
At the onset of the pandemic, our team determined that the best way to help overcome these challenges was to rely on our culture and continue focusing on our strategic pillars already in place. So rather than trying to reinvent the wheel or reactively grasp for partial solutions, we accepted the evolving and unpredictable conditions and made changes to address them directly.
Investing in and maximizing our human capital.
We strategically promoted from within, filling key roles in both our logistics and supply chain departments, respectively. Additionally, we looked externally to bring in top talent from the outside to reinforce and build upon our foundation.
Enhanced collaboration across all departments was critical in successfully determining how to best mentor and leverage new team member participation. Today, we are stronger than ever, and our added depth has us better positioned for the future no matter what it throws our way.
Relationships remain the constant in the storm.
We strive to develop strong relationships with our customers versus transactional ones and the same holds true with our partner vendors and suppliers. Our longstanding commitment to treating everyone with respect and dignity is key to us finding solutions where others only see barriers.
We’re making both short- and long-term commitments to our trusted core carriers, vendors, and suppliers. Adjusting to longer supplier lead times, we’re making strategic changes to the storage location of raw materials to minimize transportation-related delays into our production facilities. We are also building inventory on key products to ensure our customer demands are being consistently met.
Data crunching expands our decision-making ability
To best navigate the ever-changing conditions facing us, we are leaning on another strategic pillar to help innovate our approach — maximizing the use of data and technology. Our carrier partners play an integral role in providing accurate and meaningful market-related data.
By leveraging the data, we identify executable solutions – seeing opportunities where others may see obstacles. By relying on our internal team and extended network of carrier partners, we are best positioned to continue making sound decisions moving forward.
Coming Full Circle
Logistics is a very cyclical industry, and many ask when there will be a return to normalcy. Heading into the future, there is a popular motto on what to expect: “Expect the unexpected!”
Our team knows that tomorrow may bring changes and challenges… maybe even chaos. But through our organization’s constant resiliency, determination, and willingness to embrace an evolving new normal, we will continue finding success in our supply chain and logistics efforts. Leahy-IFP is about creating a more fruitful life for everyone, and we have always believed it comes down to people working together toward a common goal. So, what we do next is what we have always done — our best!