Logistics Management Group News Editor Jeff Berman recently spoke with Glenn Koepke, GM, Network Collaboration, for Chicago-based FourKites, a provider of real-time tracking and visibility solutions across transportation modes and digital platforms. Koepke provided Berman with an overview of the impact of the Russia-Ukraine conflict on North American supply chain and logistics operations, rates, capacity, and other topics. Their conversation follows below. 

Logistics Management (LM): Looking at the Russia-Ukraine conflict, how do you view its impact on the North American supply chain, in terms of things like the re-routing of shipping routes and no extra capacity standing by? What does it mean for North American-based shippers?

Glenn Koepke: There are three things we are seeing on that front.

One is pricing. We are going to see it in contracted rates but also in bunker surcharges. We may also see a byproduct of demurrage and detention as well, but that is typically related to other bottlenecks. We are going to see it in freight costs as well as the fuel impact, over the next couple of weeks, very significantly. That is very specific to the transactional market, with companies trying to hedge against the that. So, the companies that have larger volume that can commit to it will be buffered a little bit from this. But in the transactional market, where 3PLs and freight forwarders play quite a bit, they will also make higher margin off of it. I think we are going to see costs rise significantly in the North American market, specifically to importation so that is kind of number one.

Number two is just container capacity and getting containers on a vessel. I think we are going to see a rise in rolled containers and challenges with getting capacity at origin to be slotted into vessels and leave the port. As a byproduct of that, we are going to see worsened on-time shipping at origin, because as vessel operators try and figure out how do they take on the capacity, how they deploy new routes. These are very infrastructure -driven networks and they are not as agile as one would hope.

Third, we are going to see worse on-time delivery at U.S. and Canadian ports. The way companies are hedging against it now is that ports are asking companies to slow steam. It may not necessarily be reflected in the data as clearly, but the way it is going to show up is if you look at actual routing time from origin to the port of call destinations, we are going to see longer transit because ports are asking vessels to slow steam and slow things down…so it is either going to come up like that or it is going to come up also in the on-time delivery metrics at destination

In terms of sourcing, there is a question of if companies are going to near shore more now. My take is that it is not as impactful as what happened with the pandemic early on, in terms of the true global supply chain and trying to shut down and things like that, which crippled folks…and I think that educated people on where they could near shore.  I think, certain industries, like oil and gas, wanted less dependency on Russia and Eastern bloc countries, but that is very niche to those industries at the moment.

LM: Does near shoring feel more real now, even though the labor advantage is huge in Asia?

Koepke: My take it is less so due to Ukraine and more so due to Covid. At the end of the day, if you are in the supply chain, you are looking at a few different things.

LM: Like what?

Koepke: One is what is my total landed costs? What is my supply chain infrastructure? And then you are looking at risks and trade policies that are in place. In the Trump administration, with duties and tariffs, that was wild. It was for certain commodities and that drove a lot more near sourcing, more so than what is going on in Russia and Ukraine right now. The net exporter to these countries is primarily oil and gas and heavy industrial. You can look at the automotive market and others and see there is a deep reliance on China and southeast Asia and Western Europe. So, I don’t think this is going to drive a further discussion because of this one point, or event. I think it is a multitude of as we look into our buying habits, we have to minimize risk where we can, but, at the end of the day, all of these companies are generally profit-driven.

LM: Where does that leave things?

Koepke: If a consumer is willing to pay X% more to have locally sourced products, there are initial industries like apparel and others, where you can offer a premium price but when you look at mass amount of goods from a GDP standpoint, in terms of being a global economy and a global supply chain….if China gets into this, and they have stayed at somewhat of a distance and are trying to play “Switzerland” as they can, then that changes the entire world from a supply chain standpoint. Look at most anything in your house and it says “made in China.” If the U.S. and other countries were to put anything remotely close to the sanctions put on Russia to China for certain commodities and individuals, then we would be in a place where we would have to have a vertical supply chain within the U.S.

LM: Say this drags out into the summer months, with the pending ILWU and PMA deal, what could the fallout be as this conflict is still raging, and how can shippers prepare for it?

Koepke: When the U.S. first got intelligence that Russia may start a war, at that point, it was just heresay. The labor disagreement is always the biggest issue and the impact is that shippers are going to push capacity to the brink by buying product ahead of time from Asia to get into the U.S.

In parallel, they are going to see what they can re-route to go to the East Coast ports, but when you think of where most consumption is happening in the U.S. and why the ports of Los Angeles and Long Beach matter, there is a reason for it. Re-routing freight solves a small portion of the goods. I think we are going to see pricing go through the roof, and you are going to see capacity pushed to the brink again. You are going to see a pending recession that may happen. It is going to be an unexperienced couple of events we have not seen before, kind of like what we saw two years ago early on in Covid and last year. If you look at history, this is not going to go smoothly and there is going to be threats of strikes and delays and other ports are going to get freight that they cannot handle and shippers are going to be in a tough spot. Meanwhile, the air cargo market is just going to go through the roof at that point in time but that is for specialized product. Most supply chains cannot afford to airfreight a majority of their goods.

The economy is the biggest factor. if we start to see a recession and volumes go down, supply chains will ease capacity and bottlenecks will not be as disruptive. Where we stand right now, it is so volatile, and hard to predict what is going to happen next week

The major retailers are trying to compete and differentiate with Amazon long term. Wayfair has CastleGate logistics and Home Depot has its own logistics infrastructure, as examples. We are going to continue to see major retailers build out their freight forwarding arms, so they are operating as their own NVOCC (non-vessel operating common carrier), and we are also going to see more companies make acquisitions in the final mile space, like how Innovel was acquired by Costco. Companies are trying to differentiate and keep customers where the majority of upper middle class to upper class Americans are willing to pay a premium

The days of people assuming Amazon is the lowest price for the most part is gone, as most people are willing to pay a premium for sake of ease. Other retailers and outlets are seeing that as companies convert to dark stores and final mile networks and personal networks. These are things that people are looking at. I do think we will see the top of the top companies continue to build out vertical delivery networks and use that as a way to retain customers as they go forward.

From a supplier standpoint, the whole (FBA Fulfillment by Amazon) approach, for small-to-midsized companies, is a key differentiator and a great way to steal a business early on. Walmart is trying to get close to that and Wayfair is, too, in the furniture market, but they have a long way to go as well.

LM: While it remains unclear how long the Russia-Ukraine conflict will last, what are some of the key things shippers need to be focusing on, especially between now and this summer, when Peak Season kicks in.

Koepke: Many shippers are assessing their risk exposure from a Tier I and Tier II supplier standpoint. For example, as sanctions are put in place, maybe a shipper did not realize its Tier I supplier was actually buying spare parts from Russia, Ukraine or other countries impacted by this disruption. Supply chain risk exposure is number one, as it relates to where a shipper has exposure to critical products. Companies need to be doing it typically every three-to-five years, but more and more we are in the age where you just have to be continuously doing it.

Secondly, you need to be looking at demand forecasting and making some conservative predictions about where to buy ahead of time, whether it is raw materials or finished good production and for deployment. You have to be looking at a more aggressive production schedule to get ahead of things. But I think where companies are challenged right now is the question of whether we are on the brink of a recession or not? That is a tough exercise for companies that are trying to maximize profit yet make predictions that we cannot answer.

The third thing is how do you change and enable different operational decisions, and today, I think, what is continually highlighted across companies is that they are living off of e-mail and spreadsheets. There are 7- and 8-figure ERP installations and all of this technology out there. But, for many companies, as you go further upstream in their supply chain—with production, raw materials, and risk management—there are very archaic tools companies are leveraging, and they are being forced to modernize their networks at a much faster pace than what they want because of these disruptions.

About the Author

Jeff Berman, Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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