Impact of inflation on logistics remains problematic and requires planning and patience

The March inflation figure issued yesterday in the Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) showed yet another new high, rising 8.5% annually, and marking its biggest percentage gain going back to 1981.

If this trend had not already been occurring then, yes, it would be surprising or cause some sort of head-fake, but that is not the case, as it is something we have been seeing, and dealing with for a while now. What’s more, the March tally topped February’s 7.9% CPI reading, when excluding food and energy prices. While gains, in most instances, are generally viewed as a good thing, it clearly does not apply in this case.

As has been previously observed by LM, the impact of inflation on supply chain and logistics operations cannot be overstated and has been on full display for several months going back to the middle of 2021, or even sooner. Examples of how inflation has thwarted the sector include factors like: port congestion and import container backlogs; labor availability; and fuel prices, among others.

An LM reader survey of 100 freight transportation, supply chain, and logistics stakeholders continued to reinforce how inflation continues to affect things, from both an operational and business perspective.

Putting the inflationary impact on supply chain and logistics into sharp focus, the LM survey found that 92% of respondents are being affected by the current situation. You can read more about the survey by clicking here.

To say even higher inflation is not welcome news could very well be the understatement of the year, as it impacts, and is related to many issues that we see impacting supply chain, logistics, and freight transportation operations.

As for how and in what ways, there are myriad components such as labor and hiring, port congestion, fuel and energy prices (partially), and several others.

While the Federal Reserve gets set to raise interest rates, in an effort to quell, or slow down, the gains in inflation, it remains to be seen if taking those types of steps are enough.

Dave Ross, Executive Vice President for Roadrunner Freight, a Downers Grove, Ill.-based, national less-than-truckload (LTL) services provider, with a focus on long-haul metro-to-metro shipping, put the current inflation outlook into perspective, for LM, observing that the things people are buying are more expensive compared to a year ago, with things like rents and gas seeing steep increases.

“The same goes for the costs of goods, partially due to the rise to transport goods over the last 1.5 years [being] up so much that retailers had no choice but to pass things on to the consumer,” he said. “They were up so much that retailers had no choice but to pass them on to the consumer at any level, where they could consider eating them or take the hit themselves

They had to be passed on and ultimately what that does is if everything costs more money, you ship fewer things, printing more money does not make sense.”

But what does make sense, he said, is that things are not as strong as they used to be or are cooling off a little bit.

“That does not mean people are broke or not spending any money, it is just that spending is not as strong as it used to be and does not buy as many goods as it used to,” said Ross. “The backdrop of all this over the last year or so is we have seen a lot of new companies start up, but you have not felt it as demand has been so strong and supply chains so congested, it tied up a lot of capacity that way. But when things loosen up, you start to see that in the spot rates on the dry van side and we are seeing it…and even with higher fuel prices, we don’t know where fuel surcharges are going to go. High fuel prices, for a while, is obviously going to slow the economy quicker than if it comes back down quickly. From a structural standpoint, the truckload market is more cyclical and more commoditized and has seen more supply come into it than LTL. And it is also the biggest demand risk right now.”

Glenn Koepke, GM, Network Collaboration, for Chicago-based FourKites, observed, that a key way for shippers to attempt to counter, or better deal with, inflation, goes back to planning, thinking weeks, if not months, in advance, and also to minimize any last-minute shipping, whether it is for spot ocean, air, and over-the-road shipments.

Like Ross, he said these rising costs are real and have been evident over the last1.5 years, and more recently, too, with fuel costs upwards of 30%, going back to the beginning of the Russia-Ukraine conflict.

“Shippers need to plan ahead with their partners,” he said. “One of the silver linings of our industry is the consistency of goods makes life so much easier to plan around. If I know every week that I have five shipments from the Port of Los Angeles to the Chicagoland area in Aurora, Ill., it is a lot easier for the carrier or drayage provider to plan around these types of specific events. Predictability is one of the silver linings we are trying to get to, but a lot of companies cannot predict, or consumer habits or supply habits are changing…these are what we are dealing with. But being able to plan ahead and trying to stick to that plan as much as possible are the top things shippers need to be doing right now.”

Inflation is likely to remain intact over the coming months, to be sure. It is clear it impacts the supply chain on various fronts, as the LM survey data and commentary from Ross and Koepke highlight, too. What is most important for shippers now is to remain calm and take a measured approach to the situation, while making adjustments, as needed. The ability to do that has been clear, given the many obstacles our industry has been up against for more than two years running now.