Solving Supply Chain Challenges in 2022
It was always inevitable that supply chains and supply chain logistics would evolve, but with the pandemic, the path changed. In the last 18 months, many companies experienced massive stock shortages, fulfillment delays, lengthy backorders on everyday inventory items, and disruptions in their supply chains. Thanks to another year of most people staying at home and shopping online as well as the upcoming holiday season, these challenges are expected to meet or exceed last year's bottlenecks.
So, let's look at these logistics challenges closer
and find some solutions as we head into 2022.
Problem – Increased Freight Prices
Before the COVID-19 pandemic, the economy was booming, while there was a looming challenge in the freight value chain where the system (labor, assets, and processes) was struggling to keep up with demand. The real shock was when lockdowns started: people generally still had money, but rather than spend it on experiences, could only spend it on goods (such as their houses, cars, kitchen gadgets, and so on), and even began hoarding essential household items such as toilet paper.
Meanwhile, on the supply side, a looming freight labor shortage and strained infrastructure (like warehouses) became even more stressed, because of lockdowns, reduced work hours, and the disproportionate impact of COVID-19 on people such as truckers and warehouse workers. High demand and reduced supply inevitably drove up pricing, and this price increase was felt across the logistics value chain, especially in container shipping and over-the-road trucking. It happened directly, with increased spot rates on freight, and indirectly, with congestion charges and daily demurrage (hold time) fees.
Traditionally, suppliers need to ship a container to a port (which is overly congested), then they need to find a company to unload the container and put it on a truck or train. Then they need to find someone else to drive that truck or train to the warehouse for shipping to consumers. That is a lot of people/companies to contract with to ship your product.
Solution – Streamline the Process
Like Sente portfolio company Quickload, some startups are looking to streamline the shipping process. In a single transaction, Quickload ships a container, schedules its arrival in a port, and arranges ground transportation to the warehouse. Reducing the number of people/companies involved in the shipping process reduces overall shipping fees.
We have seen other startups streamline the process, too. Cargo.one focuses on air transportation, and Convelio and Zencargo concentrate on specific product segments.
Working with a freight forwarder to manage and track goods also allows for negotiating the best possible prices and fastest routes. Flexport is a modern, digital-first freight forwarder with a very innovative leadership team. For example, their CEO Ryan Peterson chartered a boat for a discovery mission in the port of Los Angeles and used what he learned to impact policy change with the municipalities to alleviate congestion.
Problem – Port Congestion
Port congestion is an ongoing challenge.
Pre-pandemic loading and unloading containers in ports was a reasonably smooth process. Shippers booked their times and teams and paid their fees. But pandemic-based labor shortages changed things – especially at the "big" ports where many shippers traditionally sent their goods. Those teams are no longer available, leading to a backlog of containers waiting to be unloaded.
Solution – Alternative Ports
The big guys are not the only port options. Some startups recognized this even before the pandemic, and they developed platforms to send containers to small or medium-sized ports.
Some startups, like Marine Traffic, rely on AI to provide visibility to the industry. Marine Traffic uses its artificial intelligence systems stations and satellite receivers to provide shipping activity insights. Also – their website has a really cool live map of ships in the water.
Others, like Fleetmon, provide vessel data and port information so that shippers can make informed decisions. And – it's another website that has real-time data.
Even though they cannot directly find a solution for port congestions, startups like these may help by getting accurate data and tracking where goods are in the shipping cycle.
Problem – Material Scarcity
Materials to make products are a key part of the supply chain. Without the necessary materials, production comes to a halt. Currently, record-long lead times, tariffs, wide-scale shortages of critical basic materials, rising commodities prices, and difficulties in transporting products across industries cause problems in material scarcity. Just look at the automotive industry, which is struggling to find chips necessary to manufacture cars (and these days, every car is a "smart car"). As a result, auto companies are producing fewer cars, which leads to a backed-up supply chain (and higher prices).
Solution – Diversification
Diversifying supply chain sourcing geographically and working with various suppliers may help overcome material scarcity and deal with today's volatile economy. Diversification also comes with the advantages of cost-effectiveness, efficiency, and sustainability. Diversifying supply chain sourcing geographically increases companies' supply chain resilience, gaining traction during and after the pandemic. And it encourages competition between suppliers driving down prices.
Supply chain management software helps with diversification by tracking data about available materials. Companies like Tracelink and Everledger work to increase transparency in the supply chain to identify and prevent supply chain issues.
Problem – Demand Forecasting Difficulties
The pandemic threw demand forecasting for a loop. Previously, companies had a good idea about when they were busy and slow. But, with people at home, demand for certain products (cooking tools or fuzzy slippers, for example) changed, and companies had to adjust quickly. And this forced adjustment affected accuracy, which led to supply chain issues.
Solution – On-Demand Production and Warehousing
Instead of relying on what might be outdated demand forecasting models to create production schedules, some companies switched to on-demand production during the pandemic – and are not going back to demand forecasting. With on-demand production, companies receive orders and then produce products instead of the other way around, which cuts down on waste and shipping and warehousing bottlenecks.
Warehouses play a huge role in on-demand production. Once these on-demand products are produced, they need to be stored somewhere until they reach the customer. We see startups leading warehouse transformations to meet this need. In Sente's ecosystem, Hopstack.io automates warehouse management and fulfillment through its AI-powered software. Some, like FLEXE, focus on customers' reliance on same-day delivery. Like Stowga and Waresix, others match available warehouse space with manufacturers who need it.
Problem – Labor Shortages
We have all read about The Great Resignation. Low-wage and hourly workers are leaving the workforce in droves. According to ABC News, A record 4.3 million Americans quit their jobs in August - the most since the Department of Labor started tracking this data in 2000. Lockdowns allowed workers to reevaluate their employment, and some went back to school. Others found new jobs because they needed a paycheck during the lockdowns. When the world went back to a version of "normal," those employees had moved on.
When it comes to the supply chain, losing these employees means losing trained workers. Manufacturers and transportation companies have had to look for a new pool of employees and train them, which costs time and money.
Solution – A Work in Progress
Solving The Great Recession involves increasing wages, improving work conditions, educating employees, and making manufacturing and transportation jobs safe and attractive. It also means changing the conversation from robots "replacing" humans to robots working alongside humans. Companies have to face these challenges and, based on what we have seen so far; we think startups will be a big part of the change, especially when they can work with large companies and institutions too.