Analyzing the Possible Impacts of the Election on the Supply Chain
It took some time, but the votes are in, tallied, and, although the outcome still needs to be certified in December, it looks like we may have a new President-elect. With every new administration turnover comes change – legislative, societal, economic – that can impact any business, including those involved in logistics and the supply chain. Traditionally democratic administrations lean more regulatory, they invest in infrastructure and will likely adopt materially different global trade and green energy positions. While these policy shifts and the potential of new regulatory guidelines won’t happen overnight, shippers should anticipate change and start developing the long-term plans and strategies to adapt for success now.
As Joe Biden and Kamala Harris begin the work of building the new administration, it’s essential over these next few months to begin doing two things. Firstly: understand the macro factors and the anticipated policy shifts that could impact everything from global trade practices to fuel prices; and secondly, take the time to comprehensively assess what these likely changes mean for your overall businesses, operational practices and any potential impact to the bottom line. At this time of year, when shippers and carriers alike are juggling the demands of upcoming holiday surges and the ongoing logistical challenges of the pandemic, it may seem like a daunting and time-consuming endeavor to undertake this kind of comprehensive review, but it’s critical in order to put your business in the best possible position to benefit from, or protect against, change. Considering four key areas and appropriate strategies to adapt will help kickstart the process of long term strategic planning for success.
International Trade: Global Alliances but American Made
One of the biggest changes that logistics teams will see under the new administration is a marked shift toward globalization versus nationalism. Democratic administrations take a more global approach to trade and Biden himself has a long track record in Congress, supporting free trade in order to further globalization. According to The Wall Street Journal the U.S. currently imposes $370 billion of tariffs on China and $7.5 billion on European goods, imposed under the current administration’s trade policies. It remains to be seen what the Biden administration does concerning tariffs but Biden is expected to focus on building relationships with traditional economic allies to create a trade bloc against China and could also negotiate a restart of activity at the World Trade Organization. During his campaign the President-elect also announced initiatives favoring products made in America as well as “a historic procurement investment” worth $400 Billion intended to boost government purchases of US-made products, help reduce reliance on imports and bolster both domestic manufacturing and jobs in industrial states.
It’s likely we will see more global trade activity and initiatives but with an emphasis on American manufacturing. However these developments proceed, they are certain to play out against a backdrop of increased sensitivity to risk and a focus on cost management. Tariffs, global shutdowns, supply chain disruption during the pandemic and additional costs to navigate these, have all meant increased transportation costs for companies. In the emerging landscape, as businesses continue to be affected by pandemic fallout and we learn more of coming policy changes, it's essential to bolster and continue building the one thing that can mitigate risk: a resilient global supply chain. This will – or must – become priority one. Being in a position to better predict further disruption, monitor and manage unseen costs and mitigate risk to inventory supply will separate successful companies from ones with less ability, vision, investment dollars and aversion for risk.
One key way of mitigating global supply chain risk is relocating supply closer to distribution. You will reduce transportation costs and avoid tariffs but other costs such as manufacturing, warehousing, and labor may increase. Sophisticated forecasting of the total landed cost to move goods from location a to location b will help determine whether localizing supply is a sound strategy, but it is a complex task and requires advanced modeling techniques. Investing in technology and the right partners that can provide data and KPI metrics at the SKU level rather than a macro level can help companies estimate cost more accurately and also react to shifts on the ground more quickly and efficiently.
Energy – Investing in Green Future
2020 brought historically low fuel prices to the transportation industry thanks to the Covid-19 pandemic and years of investment in energy independence. In fact, OPEC cut daily oil production by 20 percent in April to stabilize pricing during the onset of the pandemic. While reliance on global fossil fuels – as well as the impacts to businesses from pricing fluctuations and supply – won’t disappear tomorrow, it will continue to diminish, particularly with investment in green technologies and fuels.
Expect significant, if not imminent, impacts from changes to energy policy. President-elect Biden has proposed sweeping changes to energy policy including $2 trillion of investment aimed at eliminating carbon emissions from the power grid by 2035, speeding America’s switch to electric vehicles and zero emissions mass transit and an ambitious plan to rebuild roads, bridges and transportation infrastructure. He may also order the United States back into the Paris Climate Accord and initiate new environmental regulations for cars and trucks as well as slowing oil production on federal lands. Investment could also mean more than a half a million electric vehicle charging stations nationwide and a million new auto worker jobs created.
If Republicans retain control of the Senate, this swing to greener technologies and new guidelines won’t happen as quickly. But change – particularly to CO2 emissions standards and electric vehicles – is coming to the logistics world. What can and should carriers and shippers be doing in the meantime to improve energy usage and operate? Most companies want to be greener, to adopt more environmentally practices for their businesses and their customers, but without mandates can lack momentum. Look at simple adjustments to lower your operation’s negative impact on the environment: monitor shipping routes to reduce distance on the network; only use carriers that maintain their fleets and practice green policies in order to help encourage those operations to become more eco-friendly; and put the tools and analytics in place to measure and monitor CO2 usage across your business.
Regulations – Emissions, Tax Credits and Labor Shortages
We are in a low regulatory environment as we head toward the end of 2020, but we should expect more regulations with the incoming administration. Possible changes will almost certainly include a restoration of stricter fuel efficiency and greenhouse gas emissions standards rolled back under the current administration, as well as, perhaps, a national standard. Biden may also seek to extend the tax credit for electric vehicle manufacturers which, currently, is capped at 200,0000 vehicles per maker and exhausted, as well as introduce stricter guidelines and standards for autonomous vehicle safety. That would be very timely, given the announcement recently of a joint venture between Waymo and Daimler trucks on a project to build an autonomous class B truck. Shippers should look to partner with carriers who invest in CO2 emissions reductions, other greener technologies and practices, or in the future, driverless vehicles, as a way to potentially reduce future savings in rates.
Labor shortages, driver training standards and insurance costs could come under scrutiny for additional guidance or regulations too. This comes as the American Transportation Research Institute’s 2020 study, just released, cites new driver recruitment as the number one issue concerning operators today. Other big challenges include liability insurance costs, which in today’s market, have already bankrupted smaller carriers, causing a worsening of the capacity crisis. All of these are issues, of course, that shippers have little control over. As possible new regulations come into play and these issues certainly develop, it is a good idea to consider a carrier scorecard approach when reviewing your partnerships.
The Economy – Challenged but Recovery Focused
A semi-annual report by the Fed, released Monday November 9, points to ongoing volatility in the economy and, as Fed governor Lael Brainard suggests in a statement issued with the report, strains on certain money funds during the virus crisis in March were as significant as those during 2008’s financial collapse. Uncertainty in the markets remains high and the economy, as we go into these last weeks and months of 2020, is undeniably linked to the rapid production, approval – and most significantly – widespread distribution of a safe vaccine to the general public.
The announcement by global pharmaceuticals giant Pfizer that a close-to-approved vaccine is 90 percent effective against the coronavirus, sent US stocks soaring and major indexes including the Dow Jones Industrial Average and the S&P 500 recording near record climbs in early trading November 9. Add to this the resolution of the 2020 Presidential Election, President- elect Biden’s pronounced focus on a concerted plan to tackle the pandemic and provide financial relief and benefits to businesses and individuals in need, and the economy is hopefully showing some signs of stabilizing for recovery.
How does that impact the transportation and logistics industries? Many are major players in the recovery and support key components of Covid-19 vaccine distribution. If the FDA grants approval in November, first shipments will be greenlit for worldwide distribution and the global supply chain is going to be under enormous strain – during its busiest season. Pharma companies will experience the biggest impact but all air cargo freight will be extremely constrained through the end of the year and most likely into the middle of 2021. Companies can expect delays and we will see rate increases across the board and capacity becomes even more challenging.
The Road Ahead – Final Recommendations
Any time there is market volatility, you need to be able to predict change and challenges as much as possible, and react in a very timely manner. This comes down to three combined strategies: 1) investment in shipment execution automation through a Transportation Management System (TMS); 2) data consolidation and analysis of logistics spend using Transportation Spend Management technology; and 3) adopting an overall data-driven approach to managing the supply chain. Only by capturing and collating the data points and many variables across your entire network can you a) understand your transportation spend and b), more critically, have the data to make decisions and optimize that spend.
A Transportation Management System can create dynamic routing – the ability to route intelligently and quickly based on many variables and unexpected changes: things like congestion, disruption, tariffs or it can simply identify a more sophisticated a to b routing option. Automated data capture under a Transportation Spend Management program will consolidate data points across all of your operation, avoiding the inefficiencies of data silos that can occur in large and global logistics networks. Data consolidation, the practice of bringing all transportation spend intelligence and metrics into one centralized repository for analysis, can give companies access to data and performance metrics for every carrier, every global contract and every rate in one centralized repository for effective analysis This makes it easier to identify rate changes, or other hidden and unmanaged costs that could be caused by multiple factors from capacity challenges or policy shifts at the national level.
It’s just as important to make data driven decisions – strategic choices that are backed by hard data and metrics. Consolidated data and the analytics to measure and understand it, enables smart, strategic decisions across all facets of your operation: simplified global procurement of freight; accurate CO2 usage measurement and reporting; lane analysis for international trade during times of change; as well as the ability to understand strengths and weaknesses in your network, optimize it and make appropriate and quick adjustments and course corrections through predictive impact analysis.
The proper KPIs and associated meta-data also gives you the intel to monitor the current state of operations and help drive important decisions to shift supply, make a carrier change, renegotiate pricing and proactively manage your network. It's also critical in running predictive impact analysis in order to de-risk any changes you make that could impact your supply chain.
As we prepare for change, we should all realize we can only weather changes to the economic, political and business landscapes by change-proofing the supply chain for the unexpected – whether that's the result of a surprise global pandemic or coming policy change. Use data to understand and manage carrier performance, monitor rates and goods in transit, but also to impact-protect your supply chain. Preparing for ongoing turbulence or unexpected change means employing both trusted primary suppliers and also good backup alternates placed strategically around the globe to give you options when supply chains are strained. Do this with carriers too, and as you work your plan, realize in times of change, it’s a good idea to shorten the review cycle on all partnerships and all contracts or agreements. Reviewing often, with the data to support the process, will help you hopefully stay ahead of the next change.