The 2:00 Minute Warning

A quick note on the negotiations between UPS and the Teamsters: As the July 31 deadline for a new contract approaches with no agreement in place, the situation is very “fluid.” Last week, a strike was looking more likely. This week, Sean O’Brien, the President of the Teamsters, is telling his members that both sides are “this close” and that the Teamsters have won and prevailed. Last week, UPS rolled out communications to their customers saying that they were training their non-union staff in preparation for a strike. This week, they are painting a more optimistic tone. One thing is for certain. This contract will result in higher operating costs for UPS and that means that shippers will likely see higher rates from UPS to cover the increased costs resulting from this contract. We’ll continue to watch the situation closely. For more detail on the background of this situation, take a look at the Two Minute Warning from a week ago or two weeks ago.

The Cost of Indifference

Over the past couple of months, the Teamsters have been involved in contract negotiations with UPS, ABF, T-Force and Yellow. Some shippers have drawn up contingency plans to address the “What if” questions that are asked in considering different scenarios. Other shippers have taken a different approach and have apparently decided that they will wait to see what happens before making plans or decisions affecting their supply chains and transportation costs.

I mention this because personally I have talked to hundreds of C-Level executives – especially over the last three years. Most of these executives will tell me that having a good supply chain is important. But – and this is a big BUT – when it comes to translating those words into tangible investments that improve their supply chains, their actions speak louder than their words. Their companies continue to have supply chains that are average at best.

What’s the problem? One executive explained his dilemma. Competing priorities have resulted in an indifference towards supply chain issues. This executive explained that he knows that supply chain issues are hurting his company, but other more pressing issues have caused him to be a bit indifferent and unable to spend time on addressing these issues. As he said: “I don’t have the bandwidth or resources to tackle my supply chain issues at this time.

I appreciated his candor, but then I highlighted that this indifference comes at cost. How much of a cost was highlighted in CSCMP’s recently released 34th Annual State of Logistics Report. There were some startling statistics.

The cost of logistics for U.S. businesses in 2022 grew to $2.3 trillion dollars from $1.85 trillion in 2021. That’s about a 24% increase!

Ready for this next one. The cost to carry inventory has increased 153% - that’s no misprint, 153% over the past two years.

The report also highlighted growing ecommerce sales. The total for 2022 was $1.03 trillion dollars, which was an 8% increase from $871 billion in 2021. That’s about 14.5% of all U.S. retail sales. And reshoring has increased which has resulted in a 26% increase in shipments between the United States and Mexico.

In addition to the findings from this great report, there are other supply chain issues affecting your balance sheet. For example, as we highlighted in a recent Two Minute Warning, your company’s cash conversion is either being helped or hurt by your company’s supply chain processes.

Add it all up and this report underscores the fact that a company’s indifference towards supply chain issues comes at a cost.

Companies who understand the fact that having a great supply chain can be a competitive asset are always looking for new opportunities to improve their supply chain and adapt to changing conditions. They know that your supply chain will clearly impact their company’s financial statements.

That is why we occasionally have to ask a pointed question: Can your company afford to be indifferent in managing its supply chain? At TranzAct, we love to work with companies who are committed to having a great supply chain. Working together we can help define the supply chain strategy, draft a written plan and identify ways to eradicate indifference by investing in the resources to actually build a better supply chain. And this better supply chain will result in a better balance sheet.

If you’d like to learn more about these issues or have questions, simply give us a call, send us an email, or schedule time to meet on Calendly.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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