The supply chain generally operates behind the scenes, unnoticed and often taken for granted by people not directly involved in keeping the flow of materials and goods. That all changed in 2020 when the pandemic disrupted supply chains across the world. The supply chain remained at the forefront in 2021 as disruptions continued and transport and logistics professionals sought new ways to move materials and products.
The holiday season is expected to put even more pressure on the supply chain, and many analysts anticipate shortages and delays. Everyone is wondering what 2022 will bring to the supply chain. But to understand how the next year might unfold, it helps to take a closer look at how past events have shaped the landscape. Here are three trends that have changed the supply chain in 2020-2021:
- Shortage of drivers: Concerns about the shortage of truck drivers are real – supply chain professionals have been concerned for 10 to 15 years as drivers have started to age in greater numbers. But the pandemic has exacerbated an already dire situation. The inconvenience of being away from home, driving school closures and additional government assistance resulting from the pandemic have caused a massive tightening in supply due to a lack of drivers. In addition, as the economic recovery has taken hold, opportunities in construction and short-haul driving have resulted in the continuing shortage of drivers.
Some analysts believed the widespread distribution of the vaccines would stabilize rates and speed things up, but the Delta variant has hit. Spending remained high, but when manufacturers reopened to meet demand, they encountered their own supply chain issues on the materials side and port arrears on the finished product front, further complicating road transport. In short, it was a perfect storm that compounded an already critical driver shortage.
- Changes on the demand side: The pandemic has also altered consumer demand in two main ways, as millions of office workers have moved from commercial buildings to work from home. It has dramatically changed the purchasing habits of people, placing more emphasis on e-commerce. Crouching at home and spending less on travel and outdoor entertainment, consumers have turned their attention to their immediate surroundings.
Some have set up home offices or embarked on major home improvement projects. They bought new furniture and household items. This increase in home-driven demand has had a major impact on delivery routes, moving last mile carriers from shopping malls to residential areas.
- Mergers and acquisitions activities: As uncertainty from the pandemic slowed activity in the first half of 2020, agreements increased as transportation and logistics providers responded to new challenges, using technology to find capacity on a fragmented market. Profits rose, sparking merger and acquisition activity as investors saw the value of execution.
M&A trends in the transportation and logistics industry were off the charts in the first half of 2021. A report from PwC indicates that deal value increased 86% in the first half of 2021 over the year former. The average deal size grew 158% (in part thanks to a multibillion-dollar purchase of railroad), and analysts expect M&A activity in the industry to remain high in due to increased infrastructure spending.
With the current landscape in mind, the outlook for 2022 becomes sharper. Here are three trends to watch for the coming year:
- Overall, the transport market will remain tight. Okay, maybe I’m just stating the obvious, but it seems very likely that we now have a new standard in transportation. When you break it down, higher truck load rates are attracting drivers back into the industry again, but it will take some time to make a real difference. We are likely to continue to see significant pressures that will impact the entire supply chain. The LTL industry has historically experienced the greatest rate volatility, mainly due to high fragmentation and low barriers to entry. This dynamic leads to increases and decreases in capacity depending on market conditions. However, other segments like LTLs are much slower to adjust, especially in a limited capacity situation. When capacity is low, they can lower prices to encourage more shippers to use the services. But when capacity is limited, they need terminals, drivers, equipment, warehouse labor, etc. to increase capacity and maintain service. These complex and capital-intensive requirements mean that things shouldn’t change anytime soon, especially in light of what we all anticipate to be a continued shift from traditional retail to door-to-door delivery.
- The technological demands in the 3PL space continue to intensify. Another multi-year trend isn’t going away anytime soon. Digital entrants have made their way into what some are calling traditional brokerage, with the promise of ending human resource-intensive processes to match capacity to shipper needs and manage service in a relatively unpredictable environment. The influx of capital attracted by this idea has raised the stakes in a huge market, and each major market player is building their own version of a digital marketplace. Actors with the capital to invest, scale to operate, and create predictive data solutions will be the ultimate winners, as shippers continue to seek creative solutions to drive both efficiency and reliable, consistent service for meet their transportation needs.
- Look for more long term investment opportunities to resolve the current volatility in the segment. Recent events have highlighted the vulnerability of the supply chain challenges that exist today. Additionally, growing concerns about climate change and greener solutions to make an environmental difference are driving investments in electric and autonomous trucking. Clearly, the idea of killing two birds with one stone, impacting the driver shortage, and addressing the long-term concerns associated with climate change are powerful drivers for effecting this change. While the short-term challenges are unlikely to be relieved, in the longer term, greater stability in a volatile industry is a potential outcome.
This look to the future suggests that the challenges that transport and logistics professionals faced in 2020-2021 will continue to influence how the industry operates in 2022. The immediate past generally influences future events to some extent. measure, but the magnitude of the problems that the industry has been facing over the past year and a half, it is more likely that these factors will continue to impact the sector.
It is also important to keep the opportunities in mind. M&A activity is expected to remain high in 2022 as strategic players see the potential of the sector in a new light. The transport and logistics players – especially those who are technology-driven – have faced unprecedented challenges and overcome them with ingenuity and perseverance. It is the spirit that will drive success in 2022 and beyond.
(This content originally appeared on SupplyChainBrain)
Echo Global Logistics Inc. published this content on 22 December 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on 23 December 2021 14:56:02 UTC.
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