Warehousing latest issue in supply chains
By Jerry Hagstrom, The Hagstrom Report
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| LA QUINTA, Calif. — While there are still problems with trucks, railroads and ocean shipping, the new supply chain question for food companies is whether to build or rent more warehouse space to assure them access to supplies and to store their products, experts representing truck, rail and ocean shipping said here last week at the International Sweetener Colloquium, sponsored by the Sweetener Users Association and the International Dairy Foods Association. For several decades companies have depended on “just in time” delivery of inputs and of their products, but the lack of predictability, fluctuating freight rates, unreliable bookings, labor strikes and inflation are causing executives to question whether that system will work in the future, the experts said. Marcel van Dijk, the cargo marketing manager for the Port of Los Angeles, said, “Warehousing is going to consume more of big companies’ budgets. Instead of just-in-time, companies need to spend more on warehousing.” Jill Brubaker, executive director of the Rail Consumer Coalition, which is housed in the offices of the American Chemistry Council, said she also hears more discussions of warehousing. |
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| But Jim Ritchie, president and CEO of Red Stone Logistics and an expert on trucking, noted that warehousing comes with its own costs and risks. “Transporation costs pale in comparison with industry warehousing costs,” Ritchie said. “There is extreme financial risk to businesses depending on how a warehouse is run. Companies are focused on costs. Warehousing ties up money.” “Managing inventory is critical to the fate of a business,” Ritchie added. If a company decides to locate warehouses near its customers. the number of warehouse facilities will grow, products will be duplicated, and if consumer preferences change, the products can become obsolete, he noted. “Make-to-stock companies have a different attitude than make-to-order companies,” he said. |
| On the transportation issues, van Dijk said operations at the Port of Los Angeles are “back to normal,” with only one ship at anchor compared to 105 at one point during the COVID-19 pandemic, which caused global supply chain disruptions. But he said there is still a lot of cargo in distribution centers and the port is working to create greater efficiency for trucks coming into and going out of the port. At the same time, the West Coast ports are engaged in labor negotiations with unions, which has led some shippers to move cargo through the Panama Canal to East Coast ports, he said. The Port of Los Angeles wants to export more products to Asia because at present “we export California air back to China.” |
| Brubaker said rail is an efficient way to transport goods but there is a lack of competition among the railroads many companies are “captives” of only one railroad operating out of their location, and there is not competitive pricing. Railroads laid off employees during the pandemic and are now trying to get them back, but they are not returning, Brubaker said. Rail users want “free-market solutions but it is hard to do when you don’t have a free market,” Brubaker said. A lot of the increase in trucking rates during the pandemic went to pay drivers more, but when the drivers got more money, they chose to work less, Ritchie said. Now there are more drivers than before the pandemic, but the issue of recruiting drivers is more about lifestyle than money, he said. “Who doesn’t want to leave home for three weeks and live in your car?,” Ritchie said. The industry is looking at lowering the age of drivers to 18 with a supervisor riding along for a set period to make sure the young driver understands the job. But Ritchie said it also “frightens me and others” to put someone who just graduated from high school in charge of an 80,000 pound vehicle. |
