Our pitiful supply chains and how business/tech must respond (1/2)

Profile picture for user brianssommer By Brian Sommer August 12, 2021 Audio mode
Summary:
When you step back and look at the full supply chain that’s supposed to be serving your firm, you’ll see some eye-opening problems, as detailed in this first of a two part examination.

chain

Unquestionably, one of the biggest stories of late is the chronic absence of jobseekers for many firms. While that’s grabbing tons of headlines and creating real career anxiety within HR leaders, it’s not the only crisis impacting businesses today. The other, more sub rosa, issue is the impact of forest fires, truck shortages, rail bottlenecks, crumbling US highway infrastructure and more on business supply chains.

The accumulated effect of these forces means that you shouldn’t wait until Black Friday to purchase key holiday gifts. It also means that you should make sure your firm is altering its production schedules, adding more safety stock and finding closer-in suppliers to keep the production and distribution lines functioning.

Your supply chains are getting hammered by logistic, natural, economic and other forces, many of which are far beyond your firm’s control. Nonetheless, your firm must devise processes and alter systems to mitigate the effect of these if it is to remain profitable and viable.

Let’s look at the forces at work and what work you’ll need to do.

Current supply chain challenges - rail

In July, Canadian rail lines were seriously impacted by forest fires. According to CBC:

Rail giants CN (Canadian National) and CP (Canadian Pacific) warned their customers earlier this week that fires damaged major rail lines in the interior of the province, making them unsafe to use. That caused trains to back up along the network, idling thousands of rail cars and stranding their contents.

Canadian miner Teck Resources said it expects it to sell as much as 500,000 fewer tonnes of steelmaking coal due to the rail disruption, as it can't get its product efficiently to customers.

Also last month, Union Pacific rails in California were impacted by forest fire:

'The (Lava) Fire has spread over the Union Pacific rail lines and reconstruction of damaged trestles has begun,' the forest service said. 'The fire remains active, burning pockets of fuels on the northwest facing slopes of Mt. Shasta.'

A recent CNN report showed Burlington Northern Santa Fe employees protecting tracks from the Dixie fire.

Late last month, the Union Pacific notified its customers that:

In late June, the Lava Fire swept through the Shasta-Trinity Forest, burning more than 25,000 acres. Our Operating team worked hand-in-hand with the U.S. Forest Service to supplement firefighting efforts where we could, with five to six water trains working along a 90-mile stretch of track. In the end, we managed to save an estimated 20 miles of rail infrastructure, but our Dry Canyon Bridge, north of Redding, California, sustained significant structural damage, thus closing our I-5 route between Roseville and Portland. Our Engineering crews are working around the clock to restore service to this bridge – approximately half of the damaged track has been replaced so far. We now estimate that it will reopen in mid-August. Traffic is being rerouted through Salt Lake City, and we’ve inserted additional crews, locomotives and rail cars to handle the detours.

The Dixie Fire, just north of Oroville, California, has grown to 197,000 acres and is 22 percent contained. We are working closely with the California Department of Forestry and Fire Protection to minimize any potential fire damage. Firefighters are riding side-by-side with Union Pacific crews on our water trains to help spray down bridges and apply thermo gel to protect the structures.

Over the weekend, the fire reached our main line near Keddie, California, making it unsafe to run trains from Keddie to Portola, California. This outage now temporarily limits one of our reroute paths for our I-5 traffic. Our Engineering team is assessing the track damage and an estimated time of reopening has not been determined at this time.

Current supply chain challenges - containers

American Shipper had a great interview with Port of Los Angeles’ Gene Seroka. That story included a number of concerns regarding shipping issues like backed up container trains and ports. They noted:

Peak season, for all practical purposes, is here. There are once again 25 or more container ships at anchor in San Pedro Bay off the ports of Los Angeles and Long Beach. Rail lines UP and BNSF were so backed up that they recently throttled container flows from Southern California to Chicago.

What I learned from UP (Union Pacific) was that at the time that decision was made, they had 25 miles worth of trains sitting outside of Joliet. Lo and behold, very shortly thereafter, BNSF (Burlington Northern Santa Fe) had 22 miles of trains sitting outside that facility.

They are facing some of the same difficulties that we do here in LA (Los Angeles). Their dwell time for containers, once a train gets discharged, was three times as long as it used to be, pre-pandemic, pre-surge. The expectation is that their customers come in within the day and pick up their boxes. It was going to three-plus days. And their on-the-street dwell time [at warehouses] was up to eight days, very similar to ours. So, they’re not getting equipment back nearly fast enough. Their normal model is about two days’ street dwell.

These guys were saying, ‘How many more trains can I put in there because the guys in Southern California are screaming we need more rail cars, engine power and crews to get the next ship’s cargoes out. If [equipment] is just sitting in Chicago or other locations, I can’t get those assets and crews back.’ [Pausing service] was a painful decision they had to make.

How bad are things at the port? Seroka adds:

The railroads are full. The warehouses are full. Port terminals are full. Ships are coming in and waiting to get worked. The factories are behind in orders. This incredible demand has got everybody in the entire value chain just clipping out at levels we never could have imagined — and it’s still not enough.

“We’ve still got so much cargo coming in. We were on the phone with a big retailer this morning and they said that they’re still going to need another year to get inventories up to a level they think is appropriate.

The loading, unloading and movement of containers has problems but even getting access to containers is proving problematic. According to Hillebrand:

North America currently faces a 40% imbalance; which means that for every 100 containers that arrive only 40 are exported. 60 out of every 100 containers continue to accumulate, which is a staggering figure considering the China to USA trade route sustains on average 900,000 TEUs per month. That’s during a normal year; the current shipping volume is at record highs this quarter (up 23.3% compared to last year, according to Descartes Datamyne)

Current supply chain challenges - trucking

And rounding out transportation insights, we see that trucking is dealing with increased demand and a simultaneous shortage of drivers. According to CNN:

America’s truck driver shortage is driving pay higher. But it’s not solving the scarcity of truckers.

Massive increases in online ordering during the pandemic have sent demand for delivery truck drivers through the roof. That’s increased competition for those willing to be long-haul truckers, forcing those trucking companies to hike pay. But that hasn’t persuaded enough people to take the long-distance driving jobs that the industry needs to fill.

Pay isn’t the only issue at play either. Apparently, drivers want to be home more, expect more static routes, etc. As a result, they are evaluating whether to stay at their current employer or seek an employer that offers a different, better personal/professional balance. Another issue is that persons under the age of 21 are barred from this career choice. Finally, there’s the issue of a national database that prohibits carriers from hiring potentially high-risk drivers. Again, CNN notes:

One factor that has reduced the supply of drivers is a new federal clearinghouse that alerts carriers to drivers who have failed drug tests, DUIs or other substance abuse problems on their records. Some 54,000 drivers have been barred from driving since the clearing house went into effect in early 2020.

Current supply chain challenges - infrastructure

BloombergBusinessWeek had an outstanding article describing the depth of America’s infrastructure shortcomings and how this is adversely impacting manufacturers, the economy, the trucking industry, productivity and more. It’s quite a read.

BusinessWeek pointed out that “traffic on interstates by tractor-trailer trucks surged 31%, measured per lane mile of highway in the system, from 2000 to 2019” while freight truck delays grew 77% during the same time frame.  Delays in the trucking world trigger some $74 billion in yearly direct costs.

Infrastructure challenges include:

  • Roads that have not added lanes/capacity for decades
  • Unexpected closures of roads, bridges, etc. due to unplanned failures or deferred maintenance that got pushed too far out
  • Roads that were not designed for the speeds, weights and vehicles traversing them today
  • Undersized tunnels and bridges
  • Roads that are at capacity while alternate routes are either non-existent or undersized
  • Travel paths that trigger large numbers of accidents and corresponding delays
  • Poor conditions on roads, bridges, etc. that trigger equipment breakdowns and accidents
  • Etc.

When substandard infrastructure exists, companies can expect delays in receiving raw materials and in delivering finished goods to customers.

So that's the context and the scale of the supply chain crisis we face. The question now is what to do about it? We'll pick up on that in part 2 of this article here.