Storms Reveal Costly Supply Chain Faults, 3PL Warns

Storms Reveal Costly Supply Chain Faults, 3PL Warns

Shippers and freight transport operators must move quickly to strengthen supply chains disrupted by this winter’s severe weather, or face more disruption, equipment shortages and higher costs in the future, a logistics executive warns.

Supply chains need to be more flexible when it comes to delivery windows and lead times for shipment pickups to keep trucks moving, he said, and shippers need stronger contingency plans for when trucks can’t move at all.

Four successive destructive storms in January, accompanied by long stretches of abnormally frigid temperatures in parts of the country, caused at least $3 billion in direct economic damage, but the total supply chain costs have yet to be tallied.

“These storms have been a significant hit to supply chains,” said Ben Cubitt, senior vice president of consulting and engineering at third-party logistics provider Transplace. “The response has required a tremendous amount of scrambling.”

The supply chain disruption extended far beyond areas choked by snow or frozen by the polar vortex, and shippers and carriers are still recovering, Cubbitt said. Rates shot up, plants and distribution centers were closed and shipments delayed.

“In the past, you’d have disruption in a region hit by a storm, and then it would calm back down,” he said. “What we’ve seen this winter is storm after storm after storm, and they’re widespread. The network hasn’t been able to get back into balance.”

With more snow possible, that balance may be elusive. “When we’re really through the bad weather, the network should clear up in days, not weeks, but as long as there are these storms I think we’re going to stay disrupted,” said Cubitt.

Equipment Shortages, Imbalances Widespread

The winter weather revealed systemic weaknesses in supply chains that will still be present after the last snow pile melts, Cubitt said. Any “equilibrium” in over-the-road truck capacity simply vanished in the storms, with nationwide implications.

“We have an interconnected North American transportation network,” he said. “If for two days you can’t move 100 or 200 or 500 trucks out of Atlanta, those are trucks that won’t be able to move freight out of Chicago in another two days.”

Damage to that interconnected network wasn’t confined to one mode, of course, with railcar and intermodal, port and air cargo operations thrown into disarray as well as truck fleets. Cubitt and Transplace worked with thousands of companies, shippers and carriers, to mitigate physical and economic disruption from the storms.

“If a shipper has distribution centers in five different cities, we’ll see if we can we ship some orders out of Dallas or Atlanta instead of Chicago to keep product moving, even though you’re going to move at a higher cost.”

Equipment shortages — from trucks to intermodal chassis and 53-foot trailers — have been widespread in areas hit directly by storms, he said. At many distribution centers, there were no workers to unload trailers or load them for pickups.

“We saw plants in Atlanta shut down for two days — and we’d never seen plants shut down for more than a half day in Atlanta,” he said. “Nothing got loaded or unloaded. And when you do start catching up, the trucks all arrive at the same time.”

Trailer and chassis shortages aren’t the only equipment problems. “We had one shipper with a DC heavily supported by rail cars, normally receiving 20 to 25 rail cars a day,” Cubitt said. “Over a three-day period, they had zero, six and three rail cars.”

That shipper had to convert rail carloads to truckloads, at a higher cost in a very tight truckload market. “Storms force you to move off your primary plan and move to a backup contingency plan. That puts more loads on the spot market, so we’ve seen spot market rates 80 percent to 400 percent above normal” in certain lanes, he said.

Truck Rates, Trucking Costs Shoot Up

Spot market rates nationwide were up 22 cents year-over-year on average in January, a 13 percent increase, according to load-matching service DAT. Rates in individual lanes or for specific shipments could shoot up much higher.

How bad are the equipment shortages? “Shippers in Indiana and Kentucky last week were willing to pay deadhead miles to get trucks to come in from a greater distance,” said Cubitt. “You never see shippers paying deadhead miles in January.”

Transport operators also face higher costs. “Truckers have to reposition assets. You can have a lot of trailers tied up in Chicago and that puts your network out of balance because you don’t have enough trailers in the Southeast,” Cubitt said.

When temperatures stay below freezing for an extended period, more trucks break down, he said, “and there’s a recovery cost associated with that, and with getting power under that truck’s load so you can make the delivery.”

That really hurts the person who lends the supply chain its backbone, the truck driver.

“Miles per day is down significantly. If a driver was getting 405 miles per day, now he’s getting 385 miles. If he was getting 9 hours of productivity, now it’s 8.6 hours.” That translates into lower driver pay, as drivers are paid by the mile, and the biggest challenge for truckload carriers right now, Cubitt said, is finding drivers.

The real warning from the storms of December and January is that truckload capacity is closer to a tipping point than many shippers might think, and even a little stress can rapidly ramp up costs or in a worst case scenario, snap a supply chain.

“There are inefficiencies in the supply chain, and we need to address them as an industry,” Cubitt said. “We need a dialogue from the retailer to the 3PL and carrier to shipper and the driver. We need to sit down at the table and talk about this.”

More Supply Chain ‘Flexibility’ Needed

High on his agenda are productivity and flexibility. “More shippers need to ship seven days a week,” he said. “Trucks need to move, and the network needs to be balanced. If the network is 24/7, that in effect adds capacity.”

Flexibility to Cubitt means broader delivery time windows. “In an increasingly demanding retail market, we’ve pushed those delivery windows to an extreme that may be unsustainable. With the new hours of service rules, carriers need flexibility.”

Carriers also need more lead time. “We’ve gotten used to calling and getting a truck within 24 hours. We may need to give them more lead time. There’s a real opportunity to do more joint forecasting and identify and avoid potential failures.”

The need for flexibility, efficiency and productivity isn’t one-sided, of course. Cubitt urges shippers and their transportation partners to look at these issues from a broad perspective. “We need to find optimal solutions.”

The alternative could well be a capacity storm longer lasting than winter’s worst blast. “If I was doing scenario planning, there’s a likelihood we could see a similar pattern of disruptions and shortages during the produce season,” he said.

And that season — when general freight shippers compete with produce shippers for available truck capacity — is only a few months away.

Contact William B. Cassidy at wcassidy@joc.com and follow him at www.twitter.com/wbcassidy_joc.