Shippers: The Growing Trend of Increasing Lead Times

Shippers have been increasingly extending lead times in recent years, a trend that has gained significant attention in the industry. This shift has been driven by a combination of factors, including changes in demand patterns, geopolitical uncertainties, and supply chain disruptions. In this article, we will explore the reasons behind this trend and provide insights into its potential impact on the shipping industry.



The Shift Towards E-commerce and Increased Demand

The rise of e-commerce has led to a significant increase in demand for various goods, putting pressure on supply chains and inventory management strategies. To meet this high demand and avoid stockouts, shippers have been keeping higher inventory levels, a shift from the traditional just-in-time (JIT) inventory management strategy. This increased demand has also led to longer lead times, as shippers struggle to keep up with the demand and maintain optimal inventory levels (NRF, 2021).

Geopolitical Uncertainties and Tariffs

Geopolitical uncertainties, such as tariffs and uncertain economic conditions, have also contributed to the increase in lead times. The imposition of tariffs on billions of products for US importers in 2018-19, specifically on steel and aluminum, led to import delays and increased lead times. This uncertainty in trade relations and the potential for further tariffs have led shippers to increase lead times to account for potential disruptions and delays in the supply chain (Banker, 2019).



Supply Chain Disruptions

Supply chain disruptions, such as the COVID-19 pandemic and extreme weather events, have significantly impacted the lengthening of lead times. The pandemic has led to widespread disruptions in global supply chains due to lockdowns, labor shortages, and transportation restrictions. As a result, lead times have increased significantly, with tender lead times in the United States hitting their highest value since 2018 in late 2020 (FreightWaves, 2021). Extreme weather events, such as the Thailand flood in 2011 and the Japan earthquake and tsunami in the same year, have also caused immediate and lasting impacts on supply chains, leading to increased lead times (Chongvilaivan, 2011).



Technological Advancements and Inventory Management

Technological advancements, such as automation and AI, have also affected shippers' inventory management practices and lead times. AI and machine learning algorithms can analyze historical data and external factors to provide more accurate demand forecasts, helping shippers to better anticipate customer needs and optimize inventory levels (Chang, 2017). However, these advancements have also led to a shift in inventory management practices, with shippers adopting a hybrid model of just-in-time and just-in-case management. This model allows shippers to keep upstream inventories leaner while maintaining downstream inventories to mitigate risks (Chang, 2017).

In conclusion, the trend of increasing lead times among shippers is driven by a combination of factors, including the shift towards e-commerce, geopolitical uncertainties, supply chain disruptions, and technological advancements. While this trend may pose challenges for shippers and their customers, it also presents opportunities for innovation and adaptation in the shipping industry. As the industry continues to evolve, it will be crucial for shippers to stay informed about these trends and adjust their strategies accordingly to maintain a competitive edge.



Sources:
- FreightWaves. (2021). Chart of the Week: Outbound Tender Lead Time – USA SONAR: OTLT.USA. Retrieved from
- National Retail Federation. (2021). Retail's Big Show 2021: Retailers holding more inventory to meet demand. Retrieved from
- Banker, R. (2019). The Impact of Tariffs on US Imports. Retrieved from
- Chongvilaivan, A. (2011). The Impact of the 2011 Thailand Flood on the Global Supply Chain. Retrieved from
- Chang, W. S. (2017). The effect of lead-time on supply chain resilience performance. Transportation Research Part E: Logistics and Transportation Review, 104, 190-200.