Weather, Climate, and Natural Disasters Are Major Concerns
For shippers, the weather, climate, and natural disasters are often the enemy, causing major supply chain disruptions in the form of delays and even damage to cargo. There’s a good reason for the concern. Major weather events have had a significant impact on businesses and the economy over the past several decades. As suppliers try to reduce freight spend and with the hurricane and tornado seasons ramping up, here are a few eye-opening statistics and points to consider.
- Disruptions to the production and delivery of goods and services due to environmental disasters are up by 29% since 2012.
- North America was the region worst affected by environment-related supply chain disruptions in 2017.
- When the disruptions are measured by the number of suppliers affected rather than the number of individual events, the four most significant triggers in 2017 were hurricanes, extreme weather, earthquakes, and floods.
- In the Global Risks Report 2018, environment-related risks dominated the latest Global Risks Perception Survey (GRPS) for the third year in a row, accounting for three of the top five risks by likelihood and four by impact.
In an article published by Business Insurance, they say, “Climate risks are directly connected to supply chain risks that should be identified and mitigated as extreme weather events continue to become more severe and intense and cause rising business interruption losses.” In another article, they cite a Norweigan survey that found 75% of supply chain organizations say heatwaves, storms, and floods as their top concerns.
What are you doing to mitigate your risks?
Transportation Costs Are Escalating
One of the biggest impacts of all of this extreme weather, climate issues, and natural disasters is what it does to transportation costs. According to The Wall Street Journal, in 2017, U.S. companies spent a record $1.5 trillion on transportation costs, up 6.2 percent from the previous year. Freight rates spiked due to several reasons, one of them being the hurricanes that hit the U.S. Gulf Coast and Puerto Rico.
Related: The Florence Effect on Logistics
Hurricanes are just one weather event that keeps suppliers up at night. The risks for supply chain disruption and increased freight spend never seem to subside. In fact, they plague the supply chain year-round. In the winter, ice and snow events can last for weeks, and as one winter storm passes, another can be on the way. In the spring, tornadoes, severe storms, and floods dot the national landscape. Summer brings hurricanes, wildfires, and extreme temperatures. High winds can emerge at any time of the year.
As these events increase in nature, there will be potential for increased delays, decreased capacity, and increased freight costs. Weather and climate issues are not going away, so suppliers must figure out how to mitigate their risks in light of them.
Use Weather as a Strategic Advantage
One of the biggest risks of weather, climate, and natural disaster events are that they are all somewhat unpredictable. Weather models aren’t always in agreement and they don’t tell suppliers what their shipments can expect along every leg of their journey. If you’re gathering weather data manually, how do you know which model to use? How can you track the weather and temperatures along every lane for every shipment?
Suppliers need data and lots of it. Fortunately, you don’t have to rely on manual methods or incomplete or dispersed data. You can utilize sophisticated technology that gathers and analyzes large amounts of data from multiple sources automatically, then presents it within the context of every shipment. It paints your risk picture for you so you can ensure every shipment makes it to its destination on time with less spend as possible.
The key to this data is timing. It’s difficult and expensive to make last-minute changes to a shipment. If you have data that is enriched with predictive and prescriptive analytics early in the planning process, even 10-14 days in advance, you can make smarter decisions that drive mitigation strategies and reduce freight spend. When you can measure your risks across shipments and prepare ahead of time, you can actually use the weather and climate as a strategic advantage.
With this data in hand, presented in a graphical way that brings the data to life so it is instantly operational, you can plan. Your customers have more confidence that you will deliver their items on time so there is less of a risk for disruption to the supply chain. Your company stands out among those that have little ability to prevent interruptions due to the extreme weather and climate.
4 Actions You Can Take to Reduce Freight Spend Using Technology
Select the most appropriate mode of transportation
When you know the type of weather or climate a shipment may encounter, you can choose the mode of transportation that is less expensive without sacrificing on-time, in-full delivery. Or, you may determine that the added expense is worth it compared to the risk involved with the planned mode of transportation.
For instance, if your data tells you that the Gulf states are likely to experience prolonged flooding due to a hurricane, you may want to change how the shipment is delivered from a truck to air. While air may typically be more expensive, if your shipment can’t get through the flooded roads, you may risk more expenses if the shipment is damaged in the flood or delayed, particularly if the shipment contains sensitive items.
Choose the type of vehicle you really need
Reefer trucks are significantly more expensive than other trucks, but if you are shipping temperature-sensitive items, you may not have a choice. Or do you? If your data alerts you that there will be below-average temperatures along the entirety of the planned route, temperatures that would actually keep your freight in the desired temperature range, you can avoid the higher freight spend on a reefer truck and choose a non-refrigerated truck instead.
Related: A Guide to Cold Chain Logistics
Similarly, if you typically don’t use a reefer truck for a particular shipment but see that there will be extremely high temperatures along part of your truck’s route, you may choose a reefer truck to protect the freight. In-transit damage to freight can have costly impacts. According to one source, you have to consider many factors into the potential cost:
- Sale price, missed profit, and the original shipping cost per unit.
- Replacement unit, any discount offered, repackaging, and return freight.
- Any customer service, call center, or administrative costs, including filing insurance claim forms, making freight claims, etc.
- Cost to inspect and test the returned unit for potential re-sale.
- Storage and disposal of returned units
- Loss in profit from selling returned units at a discount as well as the percent that can be resold.
- Loss of damaged units that can’t be resold and the percent that can’t be salvaged for resale or parts.
Then there’s the loss in productivity, damaged relationships, and the hit to your brand reputation. Knowing your risks, their probability, and their potential severity is critical in mitigating them.
Plan the optimal route
Sending a shipment along its typical lane may not be the smartest decision if the weather or climate doesn’t cooperate. You have to know as early as possible what risks your freight may encounter so you can determine well ahead of time if that route needs to change. Even if the lane isn’t the fastest on a typical day, it may get your items to their destination faster and in better condition in particular situations.
Being able to conduct “what if” scenarios a week or more in advance helps you modify routes or set the right expectation with your customer. It can also be a good exercise in establishing a “Plan B” for the future.
Schedule shipments more accurately
When you know what risks are ahead, you can make decisions early in the planning process to avoid them. Maybe your shipment is scheduled to leave the dock on Monday, but if it has a high chance to encounter a severe storm as it travels through a certain area, you may decide to reschedule the shipment to leave earlier or later to avoid the worst part of the storm.
You can set the appropriate expectations with the customer, even sharing your data with them to justify any modifications in the shipment schedule. They may be willing to take shipment earlier or later than expected when they understand the risks.
Bad Weather? No Problem.
Intelligent analytics is helping companies use weather and climate to their advantage, reducing freight spend and ensuring on-time deliveries at a greater scale. You are better able to meet delivery windows, protect cargo, and understand your shipment and facilities’ risks. When risks are more predictable, they are manageable – the weather and climate included.
Take advantage of the technology that is finally available and already helping hundreds of companies protect their supply chains. Bad weather, extreme climate, and natural disasters don’t have to be dreaded or feared. Use actionable, predictive intelligence to reduce freight spend and add real economic value.