Is Another Supply Chain Crisis Looming?

Manufacturers and wholesale distributors have been no strangers to supply chain crises over the past several years. Disruptions caused by pandemic-related business shutdowns, the Suez Canal blockage, and the Panama Canal drought have impacted manufacturers, distributors, and other businesses globally. Regional events, including Hurricane Idalia, also have created more localized disruptions.

Yet, another recent incident could also impact some areas of the supply chain. After the Francis Scott Key Bridge tragically collapsed last week, marine traffic around the Port of Baltimore stalled. Ships currently in the port will likely remain in place for the time being, causing delays for goods carried on these vessels. Moving forward, importers should remain vigilant regarding deliveries of cars, light trucks, farming equipment, and construction equipment, all of which arrive in high volume at the Port of Baltimore. Other goods including sugar, gypsum, and forest products could also be affected.

In the short term, it is expected that the port can reopen after the wreckage and debris is cleared. Due to available capacity, it is likely that other East Coast ports will handle the increased volume. This diversion may mitigate significant delays. Fortunately, it is anticipated that the Port will resume full operations within a matter of weeks, despite the bridge being out of service for several years if not a decade.

The bridge closure will likely impact many companies along the East Coast. Many alternative routes have size or material restrictions, which will make large loads or hazardous materials more difficult to transport. Further, companies with warehouses or distribution centers located in or around the Baltimore area may be particularly affected by land-based transportation challenges.

As a result, many currently predict that the most significant impact to the entire supply chain will be cost. Imports may be diverted to other ports, lengthening the transportation time for these goods to reach their destination. Trucking companies may need to prepare for significant delays and lengthened driver times; both the inability to predict new route traffic and the lengthened transportation time will undoubtedly increase costs. Further, some businesses that rely on these goods may increase inventory and will look to increase prices in order to cover heightened carrying costs.

With supply chain disruptions becoming more common, manufacturers and wholesale distributors can take five actions to mitigate their risk:

1. Assess any potential short-term impacts from the Francis Scott Key Bridge collapse. This includes delays related to any imported products as well as delays that your suppliers may experience related to their imports. If you have significant import exposure, consider whether an onshoring option can provide resiliency for your supply chain.
   
   
2. Prepare yourself for cost increases in the short term. As inflation continues at a higher-than-normal pace, businesses must be prepared to ensure they can actively manage their costs to remain profitable and stable. Products not directly impacted by the bridge collapse may also be affected since land transportation is likely to be challenged for some time.
   
   
3. Talk with your suppliers. Even if you do not directly import, consider meeting with critical suppliers to ensure you understand vulnerabilities that can affect your business. Discuss the impact of the Francis Scott Key Bridge collapse on imports as well as their expectations for delivered lead times and costs over the next 12 months.
   
   
4. Continue to re-evaluate your supply chain. Many organizations revisited their supply chain after the pandemic, seeking alternative suppliers and modest levels of inventory after years of a just-in-time approach. If you have not continued to review your supply chain, consider doing so. Ensure that weaknesses are addressed and contingency plans are made in case a key supplier cannot deliver to you for any reason.
   
   
5. Prepare for the unexpected. Over the first quarter of the century, businesses have experienced several unexpected events. Besides the Francis Scott Key Bridge collapse, economic cycles, geopolitical tensions, the pandemic, acts of terror, and weather events have occurred, which are situations that business owners cannot control. Having basic protections, including maintaining adequate cash availability, using a financial budget, and ensuring you have and review timely-prepared, accurate financial statements on a regular basis can help you ensure that you are financially stable and able to weather future issues.

To discuss your supply chain preparedness, financial position, or other aspects of your business, please contact HBK Manufacturing Solutions at 330-758-8614 or manufacturing@hbkcpa.com.