Longer shipping routes and an increasing reliance on rail transport is driving up logistical costs, and passing on the cost to procurement.

The procurement sector entered 2024 facing both unprecedented opportunity and new challenges. While avenues have opened up through which procurement has greater say in the boardroom, more encouragement to adopt new technology, and a mandate to create new areas of value for the business, internal and external pressures threaten to push many procurement teams into a more reactive pattern. 

One of the factors threatening to push procurement onto the back foot, limiting capacity for strategic and digital transformation, is a global rise in overseas shipping costs. 

Shipping costs skyrocket 

Shipping between Asia and the West Coast of the US rose in price by 94% year-on-year, with runs to the US East Coast increasing by almost 40%. Overall, as of mid-January 2024, ocean freight

costs have increased 59% compared with the same period last year. 

“Drought affecting the Panama Canal and conflict around the Red Sea and Suez Canal have more shipping companies taking longer routes or putting their freight on rails upon arrival at nearer ports,” said Tim Jed, supply chain leader at US technical builder DPR Construction. “This can add weeks to material delivery schedules. Given that our industry favours just-in-time delivery, customers should head off these challenges early in their planning.”

The Panama Canal drought has reduced ship crossings by 36%, and anti-Israeli action by the Houthis (in response to Israel’s ongoing genocide in Gaza) threatens to disrupt the nearly  one third of global container traffic and around 12% of global goods trade that passes through the Red Sea. 

Many supply chains in the US—not just in the construction industry—favour the just in time delivery method that keeps inventory low, cash liquid, and revenues high. Retail, fast moving consumer goods, and agriculture are where the methodology was honed to a fine point in the 2010s. 

Resilience over speed

However, the increasing frequency and severity of logistical disruptions is pushing many sourcing departments to explore approaches that favour resilience over pure profit and speed. 

DPR’s latest report on the Q1 2024 market conditions for procurement in manufacturing notes that project owners can optimise their operations by implementing appropriate warehousing and storage solutions, whether on- or off-site, enabling them to capitalise on competitive pricing and mitigate worries regarding timely delivery. Large contractors can enhance their procurement strategies by leveraging their comprehensive contractor sourcing data, allowing them to make informed decisions about the optimal timing for purchases. 

Fostering strong supplier relationships can also offer significant advantages, affording flexibility and facilitating tailored solutions tailored to the unique requirements of each project.

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