In this episode, guest Bindiya Vakil, CEO of Resilinc, discusses vulnerabilities within our worldwide supply chains. Many U.S. manufacturers have experienced shortages in critical goods needed to keep production moving. President Biden is proposing plans to fix broken supply chains for critical goods, such as semiconductors and PPE. Vakil talks about our complex supply chains and the difficulties of simply decoupling from foreign markets.
Freight has taken a bumpy ride over the past year, mainly due to the ongoing pandemic. It's been more of a roller coaster ride than a consistent level of goods movement. How is the industry coping with such highs and lows in capacity and demand?
We have continuously reported on problems of congestion at America's ocean ports. But congestion is not a problem facing just U.S. ports; it is a concern elsewhere in the world, slowing down the movement of goods and causing supply chain delays.
Articles and resources mentioned in this episode:
Podcast sponsored by MHS
David Maloney, Editorial Director, DC Velocity 00:01
President Biden wants to fix America's supply chains. What's behind his proposals? Freight continues to take a bumpy ride. And ocean ports see congestion worldwide.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Material Handling Systems, a single-source systems integrator based in Kentucky. MHS is driven by a customer-first mentality to go above and beyond for distribution and fulfillment operations. They provide automated systems that combine robotics, sortation, software, controls, and more with full support over the entire system lifecycle. Learn more about MHS. Visit MHSglobal.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today: We've all heard the news and shortages of essential goods—PPE and, recently, semiconductors that are crucial for electronic goods. President Biden has made it his mission to fix whatever is broken in our nation's supply chains. But what's behind his recent executive actions? To answer that question, here's Victoria with today's guest. Victoria.
Victoria Kickham, Senior Editor, DC Velocity 01:33
Thanks, Dave. Our guest today is Bindiya Vakil, founder and CEO of supply chain resilience and risk-management firm Resilinc. Bindiya is here to talk to us about supply chain security and resilience and the recent announcement by the Biden administration to review U.S. supply chains for vital goods. Welcome, Bindiya, and thanks so much for joining us.
Bindiya Vakil, Founder and CEO, Resilinc 01:55
Thank you for having me. Pleasure to be here.
Victoria Kickham, Senior Editor, DC Velocity 01:59
Great. Well, I wanted to start off just by asking if you could give us a brief overview of Resilinc. What do you do, and what is the company all about?
Bindiya Vakil, Founder and CEO, Resilinc 02:08
Absolutely. So, as you can imagine, our supply chains are now global. We buy materials to make products that these materials come from all over the world. Sometimes you could have 2,000 different global factories supplying parts that go into a single product, and what Resilinc does is, we map the global supply chain to the sites that may store and distribute products worldwide. We are also the first line of defense. so whenever something goes wrong in one of these countries, we monitor 165 countries in 100 languages and alert companies whenever something could affect the flow of goods and services in that supply chain.
Victoria Kickham, Senior Editor, DC Velocity 02:53
Terrific. Thank you. And that expertise is exactly why I wanted to ask you our next question, which is about, as I said earlier, the Biden administration's announcement to review U.S. supply chains for key products, including things like computer chips and pharmaceuticals. This is largely in response to shortages and delays we've seen in the last year, especially problems securing adequate PPE to fight the Covid-19 pandemic, things like that. I wanted to ask you, what will this review entail, and what do you expect the administration to learn about our supply chains?
Bindiya Vakil, Founder and CEO, Resilinc 03:27
Yeah, it's, this review is past due, and I think past overdue, I would say. You know, for far too long, we have ignored the globalization, so to speak, of our supply chain. Not only have companies moved their factories overseas, suppliers also have moved their operations to different parts of the world, and their suppliers have as well. So, what you have seen over the last two, two and a half decades is that our entire supply chain has now, as I said, we look at sites in more than 160 countries worldwide, and you could have—the parts going into a single car might come from 30 countries, and several hundred or sometimes several thousand sites. So, it's a very complex supply chain, and then there are pockets of expertise, you know. So, for example, if you look at Taiwan, Taiwan has a huge concentration of wafer fabrication capacity that is incredibly vital to the semiconductor supply chain. It's the same with South Korea. They do a lot of the processing and packaging of that wafer, and from there, these parts are shipped worldwide. So, these countries, obviously there's a lot of risk from different types of things like hurricanes, earthquakes, cyberattacks, factory fires. Lots of things can happen within that supply chain. You mentioned PPE. if you look at PPE, it is actually one of the most inexpensive items that a hospital might purchase, but from a strategic importance to continuing operations of hospitals, PPE is one of the most critical things, because without that, you can't accept, view, or treat patients. So, what we have failed to do is, we have failed to really look at the products that we're buying and weigh the risk in terms of, what do we lose if this product is not available tomorrow?
Victoria Kickham, Senior Editor, DC Velocity 05:35
So it sounds like a big job ahead of the administration and a lot for them to read through. I wanted to next follow up by asking you about vulnerabilities in the supply chain, and where are those, in your opinion, and what are the best ways for companies to address them? In general. I know there's a lot of specifics when it comes to that, but sort of a high-level view.
Bindiya Vakil, Founder and CEO, Resilinc 05:57
There are vulnerabilities in every country, every region of the world, unfortunately. There is no such thing as risk-free in supply chain. I will say that—I'll go back to my last comment, which is, you have to look at what is risky in terms of, what do you lose if this is not available. And the biggest mistake that procurement and supply chain professionals do is they forget that. They look at everything in terms of how much money we spend. They work very closely with the suppliers that we spend a lot of money on, but as I gave you example upon example, we've seen PPE right now in healthcare, we have seen packaging that got disrupted after Hurricane Maria, the, you know, the IV bag shortage after Maria. These were the type of products that actually don't constitute the maximum spend, but they are hugely impactful if these are not available. So, sometimes things like packaging, or small things can cause outsized impact, and I think that the best way to evaluate those vulnerabilities is to focus on that one thing, which is, what is the impact to business, what is the impact to revenue, what is the impact to patients' lives when products are not available?
Victoria Kickham, Senior Editor, DC Velocity 07:17
Thank you. So, in looking at sort of reevaluating things, when we talk about or hear about, you know, decoupling from global sources, particularly in Asia—you mentioned some countries in that region—is that a realistic supply chain strategy, and sort of what's involved and kind of looking at those issues?
Bindiya Vakil, Founder and CEO, Resilinc 07:36
So, this is a tough question. It's actually very, very difficult to decouple. When you look at Asia as a whole, more than 65% of the manufacturing, globally, now happens in Asian countries. And I mean all of the Asian countries. We certainly are focusing for more than just China. But also, what is really important to realize is that for companies, even U.S. companies, as much as 25 to 35% of their sales are happening in Asia. So, when we start to talk about, can we really decouple, I don't think it's as simple as we might imagine, because I think the prevailing misconception there is that we're importing everything. Whereas we're building there, we're selling there and realizing revenue and profits here. And so when you look at the supply chain from that lens, you realize that you can't decouple. Not only that, it may not be economical or viable, even, to do so. And so the question is, how do you manage risk with that constraint that, hey, I have to have a global supply chain, we have to be lean and efficient. So, within that constraint, or within that paradigm, how do I simultaneously build resilience? Again, remember, the U.S. is not risk-free. We see winter storms, hurricanes in certain regions, earthquakes in others. We see power outages, I mean, back—the fires in California. Every place has some inherent risk. So, understanding where your sites are, what materials come from there, what are the inherent risks and vulnerabilities in those regions, and having a plan to have a backup site somewhere or inventory to buy yourself some reaction time, those types of risk assessments and proactive mitigations need to be put in place.
Victoria Kickham, Senior Editor, DC Velocity 09:35
Thank you. My next question was about, sort of, how companies can shift their sourcing strategies. What—are there any other ways and ideas that you can sort of, where they should begin to kind of look at those kind of issues?
Bindiya Vakil, Founder and CEO, Resilinc 09:48
The first place to start is, what is the highest impact to business? Identify those suppliers, those parts, and those sites that critical to the supply chain, because if you lose them, they impact their own outsized chunk of your revenue, or people might die, because the products that come from those sites or depend on them, are used to save lives. So, first step, identify what is truly critical, and then there are a few things that you evaluate, typically: Is a supplier financially healthy? What are the risks inherent at that location? Does the supplier have a backup site? How much inventory do we generally have? How easy is it to re-source this supplier, or choose a different location? How long does it take to build up the volume that we need? These are the types of inputs into the decision-making process that happens. Ultimately, you're going to pick a strategy to protect the downside risk based on, you know, what is the impact if I don't have this, and how much does it cost to mitigate those risks? And to the extent that you cannot bear the costs, you might look at insuring that, or you know, self insuring, and sometimes doing the transfers.
Victoria Kickham, Senior Editor, DC Velocity 11:09
Thank you. I wanted to just wrap up by asking you if you have—you can recommend for our listeners sort of any ideas or steps for, you know, general ideas for making their supply chains more resilient.
Bindiya Vakil, Founder and CEO, Resilinc 11:20
Yeah, absolutely. And resiliency begins with transparency, right? Visibility is the first step. A lot of times we know, who are the suppliers we buy from directly. They might be shipping to our factory from a warehouse in Arizona, but we don't have any visibility beyond the Arizona warehouse, actually, where is the factory where these suppliers are making these items. So, first step is invest in that visibility and map out the supply chain and know what's going on throughout the world that affects your business. That's the first step to be resilient, because it takes billions of dollars to create a new factory, it takes hundreds of millions develop builds up more inventory, but it only takes a few 100,000 to get visibility. So that's the first step.
Victoria Kickham, Senior Editor, DC Velocity 12:13
Thank you again, Bindiya, for being here with us today. We really appreciate your time.
Bindiya Vakil, Founder and CEO, Resilinc 12:17
Thank you for having me.
Victoria Kickham, Senior Editor, DC Velocity 12:19
We've been talking with Bindiya Vakil of Rezilinc. Dave, back to you.
David Maloney, Editorial Director, DC Velocity 12:25
Thank you, Bindiya and Victoria. Now let's take a look at some of the other supply chain news from the week. Ben, you reported this week some newly released freight statistics that show a steady but bumpy recovery. Can you tell us what you found?
Ben Ames, Senior News Editor, DC Velocity 12:40
That's exactly right, Dave. We often write about how tight freight capacity is right now in sectors like trucking and congestion at the maritime ports, but in a pair of reports this week from the U.S. Department of Transportation, we saw that that tightness is not because there's a record amount of volume in the markets. In fact, although there was a large spike in December around the winter holiday peak, as expected, in January, the total tonnage carried by all modes of U.S. for-hire transportation industry fell back again pretty steeply, according to the DOT's Freight Transportation Services Index for the month. So, that shows a pattern where the freight sector's recovery from the pandemic recession has been bumpy and uneven like a roller coaster, or some would say like the stock market. It's like the good news and bad news story. The bad news is that the index has decreased in 10 of the last 17 months since its all-time high, which was just back in August 2019, about six months before the pandemic. But the good news is that despite all that turbulence, its January level was still higher than any monthly level since the beginning of the pandemic in March 2020.
David Maloney, Editorial Director, DC Velocity 13:52
Yeah, that's really interesting. Did the reports have any details about the type of freight that make up those statistics?
Ben Ames, Senior News Editor, DC Velocity 14:00
Well, the sector is so huge, of course, that it's hard to sum it all up. But yes, the DOT also shared a different report this week that measured the amount of cross-border freight the U.S. imported and exported to Canada and Mexico for the full year of 2020. So, the DOT said that the total of North American transborder freight moved between U.S., Canada, and Mexico dropped 13% in 2020, from 2019. That included a drop of 10% for trucking, which is by far the biggest mode, and a drop of almost 17% for rail, which is much smaller. That's not a shock, of course, since the pandemic hit in March of last year, so those numbers really show exactly what the impact was. And indeed, freight's declined during 2020 compared to 2019 in every month since the start of the pandemic, until finally it posted a little point four percent increase at the end of the year in December, which is that holiday bump that we talked about. In terms of what they were carrying, in broad terms, the top three cargo categories moved by trucks was computers, electrical machinery, and motor vehicles, and then for rail, the top three were also motor vehicles; minerals like oil and gas; and plastics. So, overall, it looks like the numbers are trending up, but they're pretty turbulent sector by sector, so we'll just have to hang on for a bumpy ride as the economy continues to build back up again. But we just have to iron out those wrinkles as we look at the long term.
David Maloney, Editorial Director, DC Velocity 15:32
Right. Yeah. Well, let's hope that that build back is soon. Thanks, Ben.
Ben Ames, Senior News Editor, DC Velocity 15:36
David Maloney, Editorial Director, DC Velocity 15:36
And sticking to the freight theme, we've talked before about the continued congestion at our nation's ports, but, Victoria, you wrote this week, that is not just a problem with American ports, but congestion is something that that's being experienced worldwide. Can you tell us more?
Victoria Kickham, Senior Editor, DC Velocity 15:51
Sure, Dave. So, as you say, we've been reporting on slowdowns and congestion at U.S. ports, especially on the West Coast, but this week, we saw some statistics from overseas that are a pretty stark reminder that these issues are much broader in scope, due primarily to the global nature of our supply chains, of course. Specifically, some data out of Great Britain is revealing the effects of post-Brexit disruptions on already slow supply chains from the pandemic. The information I'm talking about comes from a group called Container xChange, which is an online platform for leasing and trading shipping containers. The group released some shipping-container availability statistics this week that showed congestion worsening at ports in the United Kingdom, really since January 1. That's the date when the country left the European Union officially and began trading under post-Brexit customs and regulatory policies, so what they showed is that data from—I'll just point out a few ports that they mentioned—data from the port of Felixstowe, which is the largest container port in the UK, as well as the ports of Southampton and Liverpool, showed increasing levels of excess containers building up at the docks, and they say this is due to, really, shipping companies and terminal operators really struggling to deal with those new, more complex trading regulations, and that comes on top of everything else that they've been dealing with since the start of the pandemic. So, essentially, the numbers indicate a growing excess of containers at those ports. In most cases, double-digit increases thus far this year, compared to last year. So, really, it looks like, you know, what was already already a tough situation is only getting worse.
David Maloney, Editorial Director, DC Velocity 17:26
Well, what are the ramifications of the situation?
Victoria Kickham, Senior Editor, DC Velocity 17:30
Well, as I said, this is a continuation of problems seen last year. Container xChange says the UK's main terminals for container traffic suffered congestion for much of 2020, again, because of the pandemic and the slowdowns there. But with containers continuing to pile up, that leads to more logistics bottlenecks, which just signals potential for more delays, disruptions, and slowdowns. On a more positive note, though, the company's data showed that container availability is better balanced elsewhere in Europe, so things are getting better. They particularly noted the port of Rotterdam in the Netherlands, as well as ports in Antwerp and Hamburg as getting more on par, so that was a good sign. But, you know, as we've been discussing in recent weeks, you know, supply chains are still super busy, but it seems that backups are here to stay as well.
David Maloney, Editorial Director, DC Velocity 18:19
Yeah. Well, that container availability continues to be a huge problem, and the ripple effects are being felt elsewhere, and in fact, we're actually going to talk about that as the subject of next week's podcast. So thank you, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 18:31
David Maloney, Editorial Director, DC Velocity 18:32
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And also check out the podcast Notes section for some direct links on the topics we discussed today. Thank you, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 18:47
Thank you, Dave. always enjoy it.
Victoria Kickham, Senior Editor, DC Velocity 18:48
Yeah, thank you.
David Maloney, Editorial Director, DC Velocity 18:50
And again, our thanks to Bindiya Vakil of Resilinc for being with us today. We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity com.
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We'll be back again next week with another edition of Logistics Matters, when we'll have a look at the difficulty of finding ocean containers to export American agricultural products, so be sure to join us. Until then, please stay safe and have a great week