By MELISSA CROCKETT MESKE
Given the challenges to the seasons of giving during recent COVID-19 pandemic years, the IBJ has eyed the forecast for this year’s celebration with the help of some industry experts.
The prediction: Early bird gets the worm, but it may cost more. And you may only get one.
“The U.S. supply chain faces a number of threats. Although the industry has seen all these issues before, never before have logistics professionals had to face all of these problems simultaneously,” shared Southern Illinois University’s Associate Professor of Operations Management Gregory D. DeYong, Ph.D.
DeYong warned of yet another newly developing broken link in the supply chain. A potential railroad strike has become even more likely after the largest rail union (SMART-TD) rejected its proposed contract on Nov. 21. Although most railway unions (8 of 12) approved the new contract, the unions which rejected it represent a majority of railroad employees.
And as an interesting twist, DeYong noted, one of the smallest (and oldest) unions may hold the keys to the potential strike.
The International Brotherhood of Boilermakers, Blacksmiths, Iron Ship Builders, Forgers and Helpers (IBB) is the smallest of the 12 railway unions (300 to 500 members). “Its very name demonstrates the long history of its existence. However, as one of the first unions to reject the proposed contract, the IBB will see its cooling-off period expire soon [on Dec. 9],” DeYong said.
“Although the BMWE cooling-off period may expire in early December, there are provisions to extend this date. Therefore, the IBB may be the first union faced with a strike decision. Since it’s unlikely that other union members will cross picket lines, a few hundred IBB members may well spark a strike that idles over 100,000 employees,” he explained.
DeYong also addressed other broken links in the supply chain.
Low water levels on the inland waterways, particularly the Mississippi River, have restricted barge traffic, leading to shipping delays and higher freight rates.
“Ironically, this slowest of freight modes (upstream tows rarely exceed 10 miles per hour) is, in many ways, the most modern of all transportation modes,” he said. “Satellite tracking and sophisticated scheduling tools combine with centuries-old sailing knowledge to make this the lowest-cost alternative for shipping bulky products such as grain.
“Current low-water levels are nothing new. Lower water levels have been recorded nearly 100 times since the Civil War ended in 1865. However, when grain shipments are at their peak, any reductions in barge capacity and dredging delays exacerbate already challenging problems,” said DeYong.
Then there’s the looming diesel fuel shortage, which DeYong said is mostly driven by a lack of capacity in both refining and pipelines.
“The last large (>100,000 barrels per year) refinery built in the U.S. became operational in 1977. The Colonial Pipeline, which delivers diesel fuel, heating oil, and jet fuel for much of the northeast, was completed in the 1960s. With winter heating season rapidly approaching, refineries typically shift some capacity from diesel fuel to its close cousin, heating oil,” DeYong said. “Unfortunately, historically low diesel fuel stocks, coupled with a Biden administration plan to force suppliers to increase the inventory of diesel fuel, is putting added pressure on already stretched refining capacity.
“In 2022, we are using 96-year-old legislation in an attempt to avert a railroad strike which may be triggered by inflation reaching 40-year highs. Refiners are using 50-year-old facilities to produce products that are shipped through 60-year-old pipelines. Twenty-first-century vessel captains are facing a problem that their fathers, grandfathers, great-grandfathers, and generations before them faced as well. It seems it is time to develop some 21st-century tools to solve these problems,” DeYong summarized.
As for the holiday outlook, DeYong said, “At this point in the supply chain calendar, most Christmas presents are already in the stores or are at least on the final leg of their journey to retailers. In fact, retail inventories are at record levels (partly as retailers have increased purchasing in anticipation of supply chain disruptions).
“A bigger concern is holiday travel,” he continued. “Christmas, New Year’s and Thanksgiving are the three most popular travel holidays in the U.S. Fuel prices will likely be high during the upcoming holidays, regardless of how Americans choose to travel. Refinery capacity is being dedicated to gasoline, diesel fuel, heating oil and jet fuel, but with refineries running at record utilization levels, there is no extra capacity to increase supplies. Although gas stations running out of fuel may be unlikely, low supplies make price increases likely, and price decreases are almost impossible.
DeYong added, “There is also a concern about the ability to heat our homes this winter. The need to balance heating oil production against diesel fuel refining, combined with generally scarce refinery capacity has led to much tighter supplies of heating oil than the historical norm. U.S. residents will likely see their heating costs rise regardless of availability.”
Workforce woes continue weakening links along the supply chain throughout the country as well, with no exception for the Southwestern Illinois region.
“In Carbondale, we have our own supply chain crisis – we have more jobs available than students to fill them,” DeYong said. “We have initiated the process to form a supply chain management center. Since May, we have been working on a number of initiatives to increase enrollment in our supply chain management program and to ensure that our curriculum prepares students for the challenges of a 21st-century supply chain.” To learn more about SIU College of Business and Analytics’ developing Supply Chain Center, visit online at https://mgmk.siu.edu/centerforscm.php.
The National Retail Federation shared some insights earlier this fall on how inflation and supply chain disruptions were anticipated to impact the holiday shopping season. They noted that higher prices and inflation were top of mind for holiday shoppers, but that many consumers are prioritizing holiday gift-giving and celebrations this year even if that means they have to cut back in other areas.
CNBC’s Frank Holland shared some key points from a recent SAP survey as well in his online Nov. 4-published “State of Freight” story.
Findings from the survey show that more than half of U.S. companies are expecting challenges in the supply chain to remain in place into 2023.
“Many U.S. companies are now shifting from a ‘just-in-time’ supply chain model to a ‘just-in-case’ model — essentially carrying more inventory and often use of more suppliers closer to the United States as opposed to reliance on Chinese manufacturing. This shift is expected to increase costs while U.S. consumers are also dealing with historic inflation,” Holland wrote.
“Rising costs in supply chain shifts are also impacting business decisions. Sixty-one percent of survey respondents said wage and recruitment freezes would be their top move to combat continued rising supply chain costs,” he noted. “With the disruption of the Covid pandemic easing, U.S. businesses now say the war between Russia and Ukraine is the top factor causing supply chain disruption.”
And while many of us think about the impact of the supply chain issues in terms of holiday gift giving, it is also impacting food and beverage availability and the costs for holiday meals and gathered celebrations.
Tom Welge is the president of Gilster-Mary Lee Corporation, a private-label food manufacturer headquartered in Chester, Ill. “From our perspective, that is still very much the case in our sourcing, both locally and inside and outside the U.S.,” noted Welge. “There are still strong cost pressures and availability issues with many of the inputs for our food products. The fall/holidays are our busiest times of the year, and the above issues make the current situation even more challenging.
In fact, “there is a new acronym going around the industry,” explained Welge. “And the current supply chain challenges it represents continue. Those of variability, uncertainty, complexity, and ambiguity.”
“Just like the manufacturers, the bigger question again this year may be around the availability of the products you want, not so much the price. A message to consumers when planning holiday meals might be: Don’t wait!” Welge said. “If the ‘must-have’ items on your list are in the store when you shop in the weeks ahead, get them.”
How we consumers experience the spirit of the holidays this year – and perhaps even next – seems unavoidably accompanied by the side effects of this supply chain VUCA.
(EDITOR’S NOTE: This story also appears in the December 2022 print edition of the Illinois Business Journal.)