The global supply chain is a complex dance, and even the slightest misstep can cause a ripple effect of disruptions. This report by Xeneta, dives into the top ten risks ocean freight companies face in 2024, equipping you with the knowledge to navigate uncertainties and build a resilient supply chain.
Major Shipping Routes and Key Geopolitical Hotspots
- Geopolitical Uncertainty
The past six months have been a stark reminder that geopolitical tensions can have a significant impact on global trade. From conflicts in the Red Sea and ongoing war in Ukraine to rising tensions over Taiwan, these events can disrupt shipping routes, cause delays, and drive up freight rates. The upcoming US Presidential election adds another layer of uncertainty, potentially impacting global trade dynamics in the latter half of 2024 and beyond.
Suggested actions:
- Diversify: Consider shifting towards a more regional supply chain to lessen dependence on areas prone to geopolitical tensions. This could involve rerouting production closer to consumers or diversifying your supplier base.
- Stay Compliant: Regardless of governmental regulations, maintaining stricter compliance standards in your operations reduces the risk of disruptions caused by unforeseen policy changes.
2. Economic Instability
Economic instability, fueled by factors like intermittent lockdowns and ongoing wars, is driving up the cost of raw materials. This, coupled with production disruptions and labor shortages, is creating a supply and demand imbalance, leading to higher prices and putting pressure on procurement teams.
Suggested actions:
- Agile Procurement: Develop a flexible procurement strategy that allows for quick adjustments, such as shorter contracts, shifts in transport modes, or dynamic pricing models.
- Supplier Relationships: Strengthen relationships with existing suppliers to foster better communication, flexibility, and support during challenging times. Consider increasing inventory buffers for critical materials to mitigate potential shortages.
3. The Rise of AI
Artificial intelligence (AI) is poised to revolutionise the supply chain, with applications ranging from contract risk analysis to digital twins (DTs). DTs are virtual representations of physical systems that allow for testing and optimizing processes before real-world implementation.
Suggested actions:
- Assess Readiness: Before diving into AI implementations, assess your organization’s maturity, talent pool, appetite for change, and data availability. Clearly define your goals and how AI will impact existing teams and processes.
4. The Evolving Role of the Chief Supply Chain Officer (CSCO)
CSCOs today must go beyond cost management and embrace a broader role encompassing resilience, agility, and sustainability. This requires a comprehensive view of the market, including global data coverage on rates, schedule reliability, carbon emissions, and surcharges.
Suggested actions:
- Global Data Coverage: Invest in global data coverage to gain insights into market trends and make informed decisions.
- Index-Linked Contracts: Consider index-linked contracts, which tie contracted rates to a market benchmark, offering greater price stability, risk mitigation, and fairer pricing for both shippers and logistics service providers (LSPs).
5. Extreme Weather Events
Extreme weather events pose a significant threat to ocean freight, causing disruptions like factory closures, transportation delays, and port closures. The upcoming hurricane season in the US, for example, could lead to production outages and higher freight rates.
Suggested actions:
- Route Flexibility: Evaluate preferred shipping routes and choose carriers that can adapt operations during extreme weather events. Consider balancing local and global suppliers to manage transportation risks.
6. Environmental, Social, and Governance (ESG) Pressures
Environmental regulations are placing increasing scrutiny on ocean freight carriers. The IMO’s target of net-zero emissions by 2050 will require shippers and LSPs to adopt more sustainable practices. Expect ESG policies to influence supplier and carrier choices, sourcing practices, and supply chain transparency.
Suggested actions:
- Data-Driven Decisions: Leverage data to track carbon emissions and choose carriers with a proven track record of sustainability. Explore solutions like blockchain technology to ensure data integrity and facilitate informed decision-making.
7. Procurement Inefficiencies
Outdated processes and limited technology utilization are major roadblocks to efficient procurement.
Suggested actions:
- Tech Stack Evaluation: Conduct a survey to understand how your team utilizes the current technology stack. Remove redundant tools and optimize auto-renewals to avoid unnecessary spending.
- Cross-Team Collaboration: Align procurement operations with wider business objectives. This fosters understanding between teams on the relationship between freight rates, schedules, and carrier strategies, leading to smoother collaboration and informed negotiations.
8. Cyberattacks
Cyberattacks are a growing threat in the supply chain. With the complexity of modern supply chains involving multiple vendors, manufacturers, and third-party organizations, a data breach can have a domino effect.
Suggested actions:
- Vendor Selection: Choose supply chain systems vendors with a robust cybersecurity track record. Limit access to shipment processing systems and prioritize strong physical security measures for your facilities. Penetration testing, continuous monitoring, and up-to-date IT infrastructure can further reduce cyberattack risk.
9. Data Integrity and Quality
Poor data quality can lead to inaccurate freight procurement decisions and reduced profitability. Sharing data with trusted supply chain partners can enhance data integrity, especially when using AI or machine learning models.
Suggested actions:
- Data Validation: Implement systems for real-time data monitoring to ensure data accuracy and timeliness. Consider blockchain technology to prevent retroactive data tampering. Collaboration through data sharing can improve data integrity and reduce ocean freight spending.
10. T-Shaped Procurement Teams
The skills gap in the procurement function is being addressed by the rise of T-shaped teams. These teams consist of individuals possessing both deep expertise in a specific area and a broad understanding of related areas.
Suggested actions:
- Identify Skills Gaps: Recognize skill gaps within your team and invest in education, mentorship, and training programs to foster a culture of continuous learning and employee engagement.
- Technology and Automation: Leverage procurement technology and automation tools, such as e-sourcing tools and spend analysis software, to free up your team for more strategic tasks and improve overall efficiency.
Proactive Risk Management is Key
Failing to understand and address market risks can lead to disruptions and financial losses. Shippers must adopt a proactive risk management approach, considering all potential risks in the global supply chain and their impact on partners.
Embrace Transparency for Success
Effective procurement strategies require complete market transparency and predictability. Real-time market monitoring and data-driven decision-making are crucial for navigating an ever-changing landscape.
In a dynamic and risk-laden ocean freight landscape, proactive risk management informed by an understanding of the top ten threats outlined in this report empowers businesses to build resilient supply chains and navigate the ever-changing currents of the global market.
(These insights are drawn from the latest Xeneta report.)