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It’s 2022 and we are still facing supply chain issues. The Economist shared in a recent article, “the era of predictable unpredictability is not going away.” So, to help you deal with some of this predictable unpredictability, avoid exorbitant shipping fees and tariffs, and get your products on the shelf faster, we wanted to share some expert opinions about what to expect this year when it comes to supply chain challenges. We also have a few suggestions on how to mitigate risk, so you don’t get burned by increased costs or lost sales opportunities.
According to an article in Fast Company, shipping containers move some 1.9 billion tons per year by sea alone. But severe trade disruptions resulting from Covid lockdowns, labor shortages, and border closures broke the system that many manufacturers counted on to get their products to market.
Containers were left in wrong locations as trade shifted, shipping capacity was reduced, and vessels couldn’t land where and when they intended. Add the issue of congested ports and problems with timely unloading and onward transportation, and a typical container now spends 20% longer in transit than before the pandemic. Sadly, each additional day adds a cost.
That same article shares that prices on major east-west trade routes have increased by 80% year-on-year. From our own experience, we recently sourced unique packaging products for a customer where the container fee and tariffs were about $25,000. Ouch!
While some experts were predicting that global supply chain challenges were starting to ease, 2022 is not starting out well. Here’s why this year will continue to be challenging for manufacturers and their packaging needs.
COVID continues to plague the supply chain
According to Business Insider, COVID-19 flare-ups in China are straining supply chains again, as authorities lock down various cities to stamp out the virus. Major cities like Xi'an, Ningbo, and the Beilun district are all dealing with intense or partial lockdowns, which is creating major problems for the shipping industry.
Chinese New Year and China’s zero-COVID policy are complicating the matter as well. With Chinese New Year just weeks away, the Loadstar reports that some cargo has been rerouted to the Port of Shanghai, which is already congested. Many smaller shipping service providers have already suspended operations this year ahead of the Lunar holiday, which starts on February 1.
Disruptions caused by COVID-19 came in the form of port delays, warehouse quarantine requirements, labor shortages, and travel restrictions.
According to an article in The Food Institute, Neil Coole, Director of Americas Food and Retail Supply Chain at BSI says, “Supply chain disruptions continue to affect the food and packaging industry, with limited supplies of packaging materials, primarily glass, containerboard, cardboard, and aluminum.”
Combined with constant labor issues and a shortage of cargo containers to move bulk materials, “these challenges will continue to increase the pressure on manufacturers and suppliers to meet growing demands,” Coole added.
Labor issues and increased demand for wines and alcohol during the pandemic has led to a shortage in glass for bottles. In the same article, they shared that the cost of glass has skyrocketed by 45% compared to prices from 2019.
Looking at alternative packaging options might be a way to circumvent materials shortages or increased prices.
Other Costs & Investments
Increasing costs will continue for a variety of reasons. Firms continue to grapple with a range of cost pressures ranging from fluctuating exchange rates, to increased demand and thus price increases for components or materials, to labor issues (shortages and wage increases).
Supply chain processes are continuing to change with manufacturers, transportation companies, and distributors investing more in automation, sustainability, back-up manufacturing plants, and even relocating distribution centers to minimize shipping distance traveled, which helps their customers with shorter delivery times and less environmental impact.
All of these changes involve significant investment.
According to the World Economic Forum, business has to be resilient and capable of adapting to major disruptions so that it can develop long-term strategies and solutions to these complex supply challenges. But, while these long-term strategies are implemented, manufacturers will need to either absorb or pass on increased shipping and other logistics costs to their customers. That could affect demand for your products.
Demand will be hard to predict this year
As people go back to the office and kids to school, back orders on products get filled, and interest rates begin to rise, demand for certain types of products and services may shift. Some companies might find that they end up with an oversupply of products or primary packaging for those products. Pelaton, for example, thrived during the pandemic last year, but now is facing challenges. They have too many bikes in stock because customers no longer want home equipment, as they are going back to the gym.
To avoid a similar fate, companies will have to forecast as accurately as they can to match production rates with demand. But, with supply chain issues still a problem and concerns about a new wave of lockdowns, demand for products could easily shift again. Companies with good data on actual demand, clear communication across supply chain tiers, and help from knowledgeable suppliers with an industry-wide view on trends will be at a considerable advantage.
Risk Mitigation Strategies
But it’s not all bad news. There are several strategies you can adopt to help ease some of the pain arising from supply chain challenges.
As an example, in an article in Cosmetics Business, the Estee Lauder Company (ELC) said it is making some changes to address the continued supply chain disruption for its business. In ELC’s fiscal Q1 2022 report, the company cited port congestion, labor and container shortages, and shipment delays as key challenges that could negatively impact the business.
The company estimates that higher transportation and logistical costs will impact the cost of sales and operating expenses for the remainder of the financial year.
To deal with the crisis, one course of action will be an increase in cosmetic prices. The company is also reevaluating its logistics process and will turn to air freight to bypass overcrowded ports where possible. Take the time to rethink your current supply chain and manufacturing, as well as packaging to circumvent challenges.
Unique or custom packaging. If you have a unique product or packaging component that no one else uses, it’s even more important to forecast. If it’s not a common item, your supplier can’t just substitute a different sku. And, if it’s not something any other customers use, your supplier won’t stock the item to grab in an emergency.
Importation Delays. If the product or primary packaging components are sourced overseas, then forecasting can help avoid production shut downs. Your supplier will have their pulse on the latest shipping times and can place orders to meet your forecasted needs, but only if you work with them to identify needs ahead of time. Read more about the benefits of forecasting and how we help our clients.
If you have any questions about how Carow Packaging can help you be better prepared for any 2022 supply chain challenges, please call our Solution Specialists at 815-455-4600.
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