Supply chain issues: The way out in the face of rising transport costs and increased prices has a system

© pixabay | marcinjozwiak

Supply bottlenecks and the congestion of transport modes are leading to rising prices in transportation. The increase is reverberating and showing effects throughout the chain. As a result, the cost of packaging can increase by around 2.5 percent. Remedies for the supply chain problems are promised by transport management systems, which, as a digital logistics platform, can lead to significant cost savings. We shed light on the current situation and describe the way out.

 

In addition to the frequently discussed bottlenecks in raw and packaging materials, another aggressive cost driver is coming to the fore: transport-related supply bottlenecks, which now affect all modes of transport – from truck to air and sea to rail. Since packaging relies on favorable freight prices, a sharp increase in costs poses major threats to the entire industry.

 

Focus on packaging machines: The current transport situation at sea

In the case of ship transport, there is a clear increase in prices. Container transport on the spot market, for example, is four times more expensive than a year ago, with an average price of $10,194 per 40-foot container in October. Reasons for the strained maritime supply chains continue to include the aftermath of the Suez Canal blockade. In addition, there are Corona outbreaks in Chinese port cities. Even more serious, however, are closed seaports or container handling backlogs in Europe and the USA. Container prices are particularly important for packaging machinery manufacturers, as important export markets for their products are located in Asia and America.

 

Focus on packaging: The current transport situation on the road

The packaging business is more regional and therefore the transport costs by truck are more relevant. Road transport capacities have already been falling since March 2021. In May 2021, they reached a three-year low. The economic recovery is a decisive reason for this development. But the shortage of truck drivers is also having an impact. Just like the persistently high prices for Diesel, which have now reached an eight-year high. The result is rising transport prices:

  • Since April 2021 alone, they have climbed by 8.4 percent. Compared to May of the previous year, the increase was a whopping 28 percent.
  • Before the Corona crisis, €1.25 per load kilometer was considered cost-covering. During the crisis, there was an oversupply of empty vehicles. The sharp drop in demand meant that even €0.90 per load kilometer was not unusual. Then, in the first quarter of 2021, the price per load kilometer in Europe rose to €1.57. Since then, average prices have risen to €1.70.

It must be assumed that prices will continue to rise. Logistics service providers and shippers do not expect any easing of the situation for LWK freight transport in Germany. On the contrary, more than 70 percent assume that transport volumes will continue to rise over the next 12 months, without this being offset by a relevant expansion of transport capacities.

 

Effects on the packaging

For packers delivering goods by road to a filler, the development has resulted in an increase of €225 for a 500-kilometer trip compared to pre-Corona levels.

In an exemplary calculation for a standard packaging system (hollow bodies), this can lead to a cost increase of 0.6 cents per package – which corresponds to around 2.5 percent of the average total cost of a package.

 

Remedy and way out

In principle, the government and the EU should ensure that the job of truck drivers becomes more attractive and that more people are interested in this work. Quite apart from how realistic this is, however, this measure would not bring any relief in the short term anyway.

What can be implemented more quickly, and what companies themselves have the most control over, is the introduction of a Transport Management System (TMS).

 

This is the way: TMS

Transport management systems are logistics platforms that use technology to help companies plan, execute and optimize the physical movement of goods.

  • TMS include incoming and outgoing goods, ensuring that the shipment of goods is carried out according to regulations and adequately documented.
  • TMS are often part of a larger supply chain management system.

The benefits of transportation management systems include:

  • Cost reductions through better tariffs, optimized routes and reduced empty loads. On average, costs can be reduced by 7.2%.
  • Efficiency and productivity gains through reduced time spent organizing the supply chain and reduced sources of error.
  • High transparency and a much better view of and into the entire supply chain.

 

Summary

While TMS used to only be worthwhile for companies spending several million euros on freight transportation, cloud-based TMS solutions now also open up the opportunity for smaller companies to integrate a transportation management system into their supply chain. Feel free to contact us to find the best providers and pricing models for you.

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