I know some of you with a sarcastic bent might be tempted to tell me that with freight costs going through the roof there is no money left over for Black Swan events - or any other parties for that matter. Others might be asking: “What is a Black Swan event?”
The concept was made popular by author Nassim Nicholas Taleb in his 2007 book The Black Swan. In the book he explains that there are three factors associated with Black Swan events. These are events that are regarded as an outlier, they have an extreme impact, and they can only be explained in hindsight. In short, they are not predictable but can be very costly when they occur.
Make no mistake about it, in 2021, there have been plenty of Black Swan events and they have played havoc with freight budgets. Whether it is events that our friend and noted ocean expert from the Journal of Commerce, Peter Tirschwell, identified in our recent interview that slow down the supply chain circulatory system, or the weather related incidents of the past couple of weeks, like Hurricanes Ida or Henri, these Black Swan events have highlighted what happens with CODE RED conditions in the transportation marketplace. When capacity is limited, rates go up and it can cost your company a bunch more to get its freight moved.
That is why as shippers work on their freight budgets for 2022, we are offering some sage advice: Make sure your budgets have a section that addresses how certain contingencies, or Black Swan events, could impact your company’s freight costs and what will be done if these events occur. An effective contingency section can let people know that you are not “asleep at the wheel” and have identified potential threats that could impact your freight costs and supply chain operations.
Heading into 2022, you should be aware that certain events on the freight “radar screen” could definitely impact your freight budgets. For example, the contract negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association could have a significant impact on operations at our West Coast ports. Other factors such as AB 5 legislation, mandatory vaccine policies, or other COVID variant outbreaks could have a significant impact on supply chains by making it more difficult to find truck drivers or warehouse workers, or other transportation roles.
We have a wealth of information that we’d love to share with you. This information can help you prepare a more accurate and realistic freight budget for 2022. And with our Rapid Assessment process, we can actually show you ways to reduce your freight costs – even when rates are going up. If you have questions about building a contingency plan or anything else, we encourage you to get in touch.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
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