Global Turmoil Fuels Demand For Supply Chain Diversification

U.S. manufacturing orders from China dropped 40% at the end of 2022 after more than a year of unrelenting demand. While this slowdown has eased many supply chain pressures, it also creates a new set of challenges requiring supply chain professionals to rethink their transportation strategies — again.

The challenges shippers face due to slowed manufacturing growth are just one piece of a much larger supply chain management puzzle. Geopolitical events from the Russia-Ukraine war to the turmoil following Brexit have disrupted global supply chain operations — leaving shippers to contend with longer lead times, volatile transportation energy prices, and inventory challenges.

However, shippers can mitigate the risk of disruption to their supply chains by designing transportation networks with agility in mind. By diversifying supply chain operations, shippers can optimize their networks to remain competitive and profitable as they navigate an ever-changing geopolitical landscape.

Geopolitical shifts create logistical headaches

Disruption has served as a common thread connecting global supply chains over the past few years. For instance, the U.S.-China trade war in 2018 provoked ongoing trade tensions between major global economies. During this time, shippers had to quickly pivot to navigate fluctuations in demand, new regulations, and increased costs from tariffs imposed by both the U.S. and China. This forced many shippers to consider relocating manufacturing plants and identify ways to absorb tariff hikes.

Less than two years later, lockdowns at the onset of the COVID-19 pandemic slowed — and in some cases, stopped — the flow of goods. The massive disruption to manufacturing created supply shortages that left consumers without essential products and companies seeking new suppliers for raw materials.

More recently, inflation-driven shifts in consumer demand and overstocked inventory caused a slowdown in the international movement of goods and containerized freight. The Port of Long Beach, a major gateway for U.S.-Asia trade, experienced a 28% year-over-year decrease in January container volume in 2023. In part, this decrease is due to the eastward shift in cargo ship traffic as shippers attempt to avoid labor disputes on the West Coast, and seek automation and efficiency on the East Coast. And with a large portion of shipping activity relocating from the West Coast to the East Coast, shippers will experience regional shifts in inland distribution capacity and sourcing pressure.

Combined, these events and their lasting impact continue to place increased stress on shippers regarding their ability to retain margins, inventory, and efficient transportation. Fortunately, supply chain diversification initiatives can help shippers address these concerns head on.

3 ways to jumpstart your supply chain diversification efforts

The above events represent just a fraction of the supply chain disruptions that have impacted shippers in recent years. But while you can’t prepare for every unknown, you can work toward building a more resilient supply chain that makes it easier to navigate turmoil.

To remain agile amid changing markets, consider these three strategies for prioritizing supply chain diversification in the coming months:

1. Lean on data to optimize your transportation network. Your ability to build a resilient transportation network that supports a diversified supply chain hinges on network data. The good news? The right strategic transportation management partners can help you access, clean, and organize comprehensive data that empowers you to make the right changes to your carrier network.

With visibility into actionable data, you can identify carrier partners that better meet your needs, renegotiate contracts based on service and compliance, and track how carriers perform against industry benchmarks.

2. Relocate critical supply chains. The need to mitigate risk has incentivized many shippers to move their supply chain operations closer to consumers. While this strategy offers benefits — like reduced life cycle CO2 emissions and supply chain diversification — it’s not always a viable option due to limited warehousing capacity and labor costs in the U.S.

That’s why many companies opt to either shift operations to places like Mexico (where labor is cheaper) or relocate only the most critical elements of manufacturing. It’s important to note that there’s no silver bullet to restructuring supply chains — it’s all about optimizing your strategy to meet your specific needs. And as you explore relocation opportunities, access to comprehensive transportation network data enables you to more accurately weigh the costs and benefits against your current network.

3. Establish strategic priorities. It’s important to identify your top priorities and opportunities as you weigh your options for supply chain diversification. Any initiative you act on will have drawbacks — for example, you may have to front higher warehousing costs if you shift operations to the U.S. However, if risk mitigation has been an issue (and now, a priority), it may be worth it in the long term to pursue this change.

Access to comprehensive and actionable data enables you to decide whether your transportation strategy is best optimized through large-scale changes or lane-level tweaks. As you’re making improvements in these key areas, you will be able to reduce costs, establish stable transportation networks, reduce emissions, and operate more efficiently.

If the future looks anything like the past few years, supply chain resilience will be the key to remaining competitive in 2023. Supply chain diversification looks different for every shipper, but when you optimize your transportation network for agility, you can set your team up for success for years to come.

Schedule a demo of Network Intelligence to learn more about how you can design a resilient freight strategy and navigate an ever-changing geopolitical landscape.