Nordstrom and a number of other retailers are starting to keep more inventory, by buying larger lots and holding some. The fact that retailers are publicizing this means that they are starting to recognize that inventory shortage is a substantial issue. With sources of supply bottlenecked, stuff can’t be moved to the US as quickly.
Does it make sense to place larger orders earlier? Devotees of the bullwhip effect will say that’s counterproductive. Perhaps, in the long run with perfect coordination with suppliers. But when you have near-disaster conditions in the supply chain for, say, clothing manufactured in Vietnam, and ocean carriers blanking just about every other sailing, you need to take some action. That may mean committing to larger purchases and saving some of it against future demand rather than trying to sell it all at once.
We’ll see if the policy works, and how quickly it damps out. Especially if the ocean supply chain begins to normalize. Inventory is expensive, and the expense is both highly visible and easily tracked, unlike the lost business due to shortages on the floor.
It’s not going to be easy to sue a carrier for delays and blanked sailings. But whatever your taste, you have to document everything. The author, a lawyer, points to many types of documentation required to substantiate your claim.
I believe that the threat of many suits may well be useful to annoy carriers. They’re less likely to engage in reprehensible behavior like blanking if they know a bunch of shippers are going to be suing them. Those little lawsuits are annoying because each has to be dealt with somehow, and if the plaintiffs (shippers) are persistent, the annoyance may be enough to get the carrier’s attention.
Now there are two ways that attention can go. One way is that the carrier offers to settle and doesn’t complain too much. This may be a sign they care about your future business– at least a bit– or that they are taking a generous attitude toward customer service. The other way is hardball. They may deny everything and threaten you back. That is a sign they don’t want your future business, and just want to dispose of this claim to be able to tell authorities they have dealt with it. In this case, you probably won’t get anything, unless you have deep pockets for the law, and can pursue a case for which you are unlikely to recover your expenses.
And whatever action you take, don’t expect prompt resolution. One thing companies do is try to string out a case hoping the plaintiff loses interest or has a need to move on and not spend the time. That manages to get a lot of complaints off their back.
However, company lawyers are expensive too, and a stream of annoying lawsuits is not how the company wants its lawyers spending their time. So harassing the company with a lawsuit might get you some attention.
I keep updating this story as more information becomes available. In the first article Mike Wackett quotes actual evidence that Maersk is going to reject forwarder and broker business soon. We’ve been expecting this for some time, as Maersk has been touting their new software for door-to-door shipping arrangements.
The second article provides more actual evidence, and indicates that some other liner firms are making offers to forwarders.
The forwarders and brokers are right to be annoyed. Many of them have served customers well for years, and their customers won’t necessarily be happy.
But Maersk has a point. The system of the past 20 years or so, where brokers bought large blocks of space from the ocean carriers, hasn’t worked too well either. That system seems to have penalized ocean carriers too much. It’s not clear it rewarded brokers too much, however. Shippers may have got the best deals from the old system. They seem to have been in a position to keep prices low.
There’s a lot of modeling that’s been done in the Operations Research field regarding multilevel supply chains. One thing studied is the effect of pooling, namely selling in blocks, to distributors, while allowing retailers to purchase resold units as they wish. These models are always fraught with assumptions; the type of demand distribution, the pricing conditions at each level, the number of distributors (brokers or wholesalers), and the number and type of retailers (shippers). Most have a product inventory setting, and so are not a direct analogue with the liner industry. However, it’s clear from these studies that relatively small changes in parameters can change the character of who profits most from the contractual arrangement.
So it’s not a surprise that Maersk, or someone, would try to change the nature of the system, to see if they could make one that worked better.
In this type of model, liner firms continue to handicap themselves by building bigger and bigger ships— their lot size, the number of slots they have to sell for one voyage, grows larger and larger. With a larger lot size, you need to sell and fill more and more slots at a time, or else be able to blank a sailing— withdraw an entire lot from the delivery cycle. That causes the service level to fail catastrophically, and for more cargo and for more customers. All the customers that bought that voyage will be angry at once.
Whether this strategy will work as Maersk thinks is up for grabs at this point. I think it’s likely that many will be bent out of shape by the new deal, brokers and shippers alike, and the behavioral consequences of the change may sink it, or at least require reworking over time. And I think it tends to feed the rationale of degrading service whenever you want to. I don’t think most shippers will see that as a good thing.
Whatever happened to keeping customers happy? We teach that goal in supply chain management.
Supply Chain and Logistics 