Earlier this week American Airlines cancelled approximately half of its scheduled flights due to concerns over a potential wiring issue in MD-80 passenger jets. Over 1000 flights were cancelled on Wednesday and nearly 500 were grounded on Tuesday. It has been a tough year for the airlines. Not only are jet fuel prices rising rapidly which is driving carriers such as Aloha and ATA out of business, but operations disruptions are dealing further blows to the bottom line. A few weeks ago I was in London during the week that Heathrow Airport’s long anticipated Terminal #5 was scheduled to open. As you have no doubt heard a series of operations failures handicapped the new terminal and its major tenant, British Airways, for much of its opening week. Fortunately, I have not been directly impacted by any of the operations disruptions or flight cancellations as my travel patterns tend to steer me towards flying United, Delta or US Air. But even those of us who haven’t been stranded at an airport yet, may be impacted more than we realize.
Airline Disruptions Upset Travelers, but also Slow Supply Chains
Many of you know may know that American is the largest passenger airline in the world. But you may not know that American is also one of the largest air freight carriers in the world providing a range of transportation services to shippers. American’s
Cargo operations has the capacity to move 100 million lbs of cargo
weekly including everything from small parcel packages to heavyweight
bulk pieces up to 300 lbs. Thousands of businesses rely on commercial
airline cargo services to provide expedited delivery of freight to
locations worldwide. Freight forwarders are some of the largest
customers of airline cargo operations. Forwarders will purchase
capacity from commercial airliners on behalf of their end customers to
route international cargo between origin and destination. So the point
is that when an airline cancels flights, it not only has to
inconvenience the passengers, but it also must reroute time-critical
cargo shipments. Even though the wide body aircraft such as Boeing
777 and Airbus 340 which carry much of the international cargo were not
affected by the FAA inspection mandates, the smaller connector flights
which route the cargo to its final destination were affected. Many
businesses depend upon air freight transportation as a critical conduit
for their supply chains. As a result, cancellations and disruptions to
air travel impact the bottom line of the airlines as well as the
profitability of their business customers.
Growing Transportation Challenges in the Supply Chain
It seems that transportation challenges are
becoming more and more significant issues for supply chain managers in
2008. Not only must you factor in weather and traffic, but there are
an increasing range of political and economic factors that must be
considered. The environment is an increasingly sensitive topic as more
corporations are seeking to become carbon neutral. Transportation
processes are receiving a high degree of focus in these corporate
social responsibility initiatives. In January, I wrote about several
transportation related issues discussed at the National Retail Federation Show. These
included the growing problem of port congestion and potential labor
strikes in the Western US hubs of Long Beach and Los Angeles.
Recently, however there seem to be two new transportation related
challenges disrupting supply chains: 1) airline operations disruptions
and 2) the falling US dollar. Having discussed the former, let’s now
explore the latter.
The Falling US Dollar
What does the US dollar have to do with transportation processes and the supply chain?
There was an interesting article in Thursday’s
Wall Street Journal about how manufacturers in rural regions of the
Midwestern United States are encountering challenges exporting their
products. You might not be surprised to see such a headline. For the
past twenty years we have been inundated with stories of how offshore
manufacturers using low cost labor are making US products uncompetitive
in the world market. However, Thursday’s Wall Street Journal story (Container Shortages put US Export Boom in a Box)
had a very different theme. As the value of the dollar has fallen
against the major currencies, prices of US manufactured goods are
becoming more competitive in international markets. As a result, US
exports are beginning to grow at a pace not seen in decades. The
problem is that the US has fine-tuned its transportation infrastructure
to support the highly imbalanced import flows experienced over the past
few decades. With supply chain trends beginning an unfamiliar
reversal, the transportation infrastructure is struggling to keep
pace. One unexpected challenge is the shortage of shipping containers
– the big, metal boxes that are used to house goods as they travel on
rail cars and steamships en route to their destination. The Journal
stated:
“…Finding enough of the big metal boxes
used to be a cinch, because the nation’s massive hunger for imports
meant they were constantly arriving and stacking up from Long Beach,
California to Long Island, NY. Shipping companies typically scoured
the country for anyone willing to fill outgoing boxes…”
But most of these cargo containers are used to
move consumer goods that are unloaded at retailer distribution centers
near major metropolitan areas. US exports tend to be agricultural
products and industrial equipment produced in the rural sections of the
country. The head of container research at Drewry Shipping Consultants
was quoted stating:
“There are some places, particularly in the Midwest, where there’s a complete lack of containers.”
As a result, exporters are struggling to fully
capitalize on the growing market opportunity. There have been lost
orders and shipment delays. After all, what does a manufacturer do if
they cannot find enough container boxes to ship their products to
overseas destinations? Well a more expensive, perhaps easier
alternative is air freight. That is unless it is flying BA through
Heathrow or American on an MD-80 or whoever the next target of FAA
inspections is….
Best Practices for Managing Supply Chain Disruptions
So what should retailers and manufacturers do to avoid supply chain disruptions from unpredictable transportation challenges?
Risk mitigation strategies such as diversifying
the transportation vendors, port facilities and trade routes utilized
in your supply chain will provide some level of resiliency against
unforeseen congestion and bottlenecks. A more expensive option is to
buffer additional inventories at strategic points in the supply chain.
But the truth is that no amount of planning or hedging can provide 100%
avoidance of transportation related disruptions. As a result, supply
chain managers should place as much emphasis on preventative measures
as they do on their ability to quickly to react to disruptions when
they occur. When an air freight shutdown or a container box shortage
arises, transportation managers should be able to quickly adapt their
supply chain models to route around the bottlenecks. A key factor
that will influence the agility and responsiveness to supply chain
challenges is the level of information you have about your
transportation processes. Suppose you shipped an order to a customer
in Western Europe earlier this week. The goods were to be shipped air
freight for arrival on Friday afternoon. Will your shipment be
impacted by the problems at Heathrow or at major American hubs? If you
don’t have good visibility to your logistics processes then you may not
know who your freight forwarder contracted with for the trans-Atlantic
route.
Transportation Management Applications
The best way to take control of your logistics
operations is with a Transportation Management System (TMS). These
applications can provide a centralized, enterprise-wide view of all
logistics activities. With rising fuel prices and the looming economic
recession, I suspect more and more companies will be evaluating TMS deployments. for the second half of this year. Fortunately, a number of new software-as-a-service models are emerging that can help companies to accelerate the ROI and benefits of their TMS applications.
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