Build resilience in the face of supply chain challenges

“It’s always something.” This classic phrase applies particularly well to the global supply chain, which continually faces disruptions from a myriad issues—ranging from technology innovations to contentious trade agreements or international conflicts and even changing climate events like hurricanes, snowstorms, tsunamis and more. 

To minimize risk when disaster strikes—which will happen—businesses must be proactive and prepared for anything that may threaten to weaken or break any links in their supply chain. For industrial real estate and supply chain leaders, this can mean taking a more strategic approach to industrial site planning. How can planning help companies in the face of disruptors? Let’s look at some examples. 

Double whammy: Suez and Panama Canals 

Disruptors come in many forms, ranging from human error to geopolitical events, weather and more. For instance, the Suez Canal—one of the most-used canals in the world—has experienced two major disruptive events since the start of the decade: First, a cargo ship ran aground in 2021, creating a wedge in the canal that blocked traffic for six days. Then in fall of 2023, the Red Sea crisis began, caused by Houti rebels, forcing shipping companies to reroute shipments 4,000 miles south around South Africa’s Cape of Good Hope, adding weeks of travel and hundreds of thousands of dollars in fuel costs per trip.

Meanwhile, extreme weather events are growing more severe across the globe. Take the Panama Canal, for example, which last year experienced one of its driest two years on record for the nation and restricted daily crossings to half, according to the Journal of Commerce. And flooding in Southern Brazil has forced businesses to temporarily shut down operations—for instance, Brazilian logistics company Rumo partially interrupted train circulation as it assessed asset damage. 

Other recent events impacting global supply chain dynamics include: 

• Russia’s invasion of Ukraine in 2022, which severely disrupted the global food supply chain when Russia blocked Ukraine’s Black Sea ports. This virtually cut off the nation’s agricultural exports by sea—90% of its total agricultural exports. While there have been recent efforts to export grain through the Black Sea Grain Initiative, the situation remains fragile. 
  
• Canadian wildfires in 2023, which significantly disrupted and raised costs on softwood lumber exports to the U.S., Alberta and Quebec, and destroyed more than 7 million combined acres. This is a significant supply chain disruptor stateside, as Americans rely on Canada for approximately 80% of their softwood lumber, according to Natural Resources Canada. 
• The March 2024 collapse of the Francis Scott Key Bridge in the Port of Baltimore, caused after the container ship Dali struck one of the bridge’s piers. This blocked all shipping to and from the Port of Baltimore, costing $15 million per day and forcing many ships to redirect to other ports. 

With such a bright spotlight on the fragile nature of supply chains, it’s become clear that companies can’t take a set-it-and-forget-it approach when assessing their supply chain strategy. Insufficient preparation for disruptions means many are paying the price through inflated costs and longer shipping periods—costs that are typically passed over to the shopper, who then is impacted by paying more and waiting longer to receive their goods. 

A rise in reshoring 

When the U.S. government put travel and transport restrictions to and from China in 2020, during the early days of the COVID-19 pandemic, the impacts caused a ripple effect that many companies felt worldwide, revealing their overreliance on trade with the country. Even if China wasn’t a company’s primary manufacturer, it likely served as a Tier 2 or 3 supplier. And given the political tension between China and the U.S.—plus America's desire to cut dependency on products from abroad—the U.S. government designed incentive packages that encourage businesses to explore manufacturing operations in the United States (aka “reshoring”) where they’re also looking to relocate their warehouses and distribution centers.

As a result, talk of nearshoring and reshoring manufacturing and warehouse locations has grown dramatically. Between Q1 of 2020 and Q3 of 2023, executives spoke more frequently of onshoring, reshoring and nearshoring than before during conferences and earnings calls, according to The Conference Board. 

The Amazon Effect spills into B2B 

Supply chains looked far different before Amazon launched its e-commerce website in 1995. Before then, consumers could expect to get their goods shipped to their doorstep in five to seven days. Amazon reduced that to just two days—and with free shipping. 

The company took a more thoughtful approach with its distribution network, going from operating eight distribution centers in primary markets such as New York/New Jersey, Chicago, Dallas, and California’s Inland Empire, to an estimated 1,400 facilities and warehouses in secondary and tertiary markets nationwide, such as Salt Lake City and Denver. This completely changed consumer expectations around customer service. 

This is forcing other business-to-consumer (B2C) companies to choose between competing with Amazon or risk getting clobbered by the e-commerce giant. To become more competitive, B2C supply chain and industrial real estate leaders had to start re-evaluating their networks to reduce freight expenses, get closer to customers, and more easily deal with changes in their supplier networks and geopolitical events.

However, Amazon’s influence on B2C supply chains is now spilling over into the business-to-business (B2B) realm. Amazon set consumer expectations so high for B2C delivery that businesses are now expecting similar service for their online purchases. The B2B marketplace is twice the size of its B2C counterpart, but it still lags with supply chain optimization. This suggests a huge opportunity for B2B companies to rethink their industrial real estate strategy—especially since B2C, and its influence on B2B supply chains, will only continue to grow. 

How a new location strategy can help you succeed 

The good news: Businesses can minimize these and other risks by taking a more strategic approach with their real estate, especially when it comes to warehouse and distribution center location strategy. Re-evaluating your industrial site selection can help you: 

• Improve reliability and resilience: By nearshoring or reshoring your manufacturing and/or sourcing centers, you can rely less on overseas shipping—especially from China—and reduce your odds of being affected by geopolitical, socioeconomic or extreme weather issues. 
  
• Surprise and delight your customers: By choosing sites closer to your customers, you can speed up last-mile delivery, which can help boost their loyalty to your business. 
• Save money: By locating closer to your suppliers and your customers, you can reduce the amount of money and time you spend on freight and shipping, freeing up cash to spend on talent or other valuable resources. 

There are so many criteria that go into these investments, requiring companies to become more sophisticated in their real estate decisions. Want to learn more about how you can mitigate risk and save money by taking a closer look at your site selection strategy? Contact us to start the conversation.