Different aspects of the economy have faced challenging crises over the past few years, with countries having to put up with rising levels of food insecurity, rapid inflations, inconsistent and insufficiently coordinated macroeconomic policies, and inadequate structural reforms. In recent memory, one such crisis that springs to mind is the COVID-19 pandemic.
The supply chain, in particular, has already demonstrated a high susceptibility to severe crises, and a looming rail strike threatens to destabilize an already fragile industry. Much has been made about the rail strike and its possible economic impact, partly because we are closer to a strike than a resolution. Hence we unearth how the rail strike exposes the weakness of the supply chain and how companies can prepare logistically to manage this level of disruption.
Logistics and Supply Chain
Economists, successful companies, and other industry specialists view logistics as a critical supply chain blueprint. The ever-present necessity for a reliable source for transporting bulk cargo makes logistics crucial to supply chain management. Yet, rail lines remain more of an afterthought compared to the most common freight transportation routes.
Today, however, their prevalence across different locations in the United States makes trains an ideal option for long-haul bulk cargo transportation compared to most modes. So much so that railroads make up about 30% of freight deliveries. In fact, the railroad is so efficient in logistics that replacing a bulk train would require about 500 trucks.
In addition, railroads also serve as a crucial link between ports and truck terminals regarding bulk cargo transportation. The Association of American Railroads (AAR) also highlights how well the railroad sector has kept up with development in other logistics sectors. Rail lines now feature double-stacked containers, improved technology for loading and unloading railcars, and terminals explicitly designed to improve transportation efficiency.
Disruptions That Would Accompany A Rail Strike
According to the AAR, a rail strike would cost the US economy about $2 billion daily. At first glance, this looks like a stretch; however, when you examine the link between supply chain and logistics, you begin to see some truth to the association’s claims.
First, the supply chain incorporates several aspects that work individually within their respective areas of expertise. As such, each component must function consistently and support other supply chain elements.
For instance, transportation is a significant aspect of oil production, with most refineries located away from hydrocarbon reserves. However, in the case of oil production, transportation is achieved through pipelines, vessels, trucks, and trains. For each refinery to meet an inventory target, they must develop a consistent schedule for transportation.
In the case of production and manufacturing, companies usually have a good idea of how long it takes to create products and market them to the end customers. Therefore, the services of logistics companies are required to transport these finished products. However, if a component of the supply chain defaults, it affects every other aspect. In the case of logistics, the inability to bring in raw materials or ship out finished goods would be detrimental to the manufacturer, consumer, and the economy in general.
This analogy may present a simplistic perspective of a supply chain’s complexity and interconnectedness. Still, the primary outcome here aims to recognize logistics as a significant player throughout the supply chain, from delivering raw materials to transporting finished goods.
Yet, even with a flawless logistics network, manufacturing companies still face specific challenges they must overcome. For starters, timing is highly critical in addressing a supply chain’s finite inventory. Aside from timing, which guarantees raw materials and goods arrive within a scheduled timeframe, companies must also be precise in their planning, ensuring the exact numbers of railcars required to transport goods are engaged.
Now, considering how impactful a rail strike would be to planning precision and timing, the AAR’s claims make more sense.
How Companies Can Prepare For The Rail Strike
At some point, the rail strike seemed like it would be averted. However, industrial action is back on the cards, with some rail unions rejecting a tentative deal to end the dispute. Evidently, the supply chain depends significantly on logistics; hence, companies must be prepared to manage risks if a rail strike occurs.
The first step that companies should take involves supply chain digitalization. Technology has helped streamline various sectors and can also be used to manage certain aspects of logistics, such as tracking and tracing. By integrating technology into inventory tracking operations, a company not only knows the location and current state of railcars but also understands the status of transported cargo and makes better plans regarding inventory scheduling. Maintaining an accurate inventory is essential to managing operational capital.
While this step aims to manage the impact of a rail strike, companies should integrate technology across various other modes of transportation. It also helps to recognize the current status of each distribution channel and quickly recognize any potential issue. In doing so, a company becomes more flexible and efficient in addressing logistic and routing issues.
Additionally, supply chain digitalization allows companies to view the entire network and effectively predict potential challenges based on signals. Analyzing real-time signals can help provide companies with leads, from capacity constraints to the effects of inconsistent inventory scheduling. In truth, digitalizing a supply chain is all about improving efficiency. A rundown of some benefits of digitalization to the supply chain includes the following;
- Minimizing lead time as a result of a potential rail strike
- Fostering just-in-time (JIT) manufacturing.
- Creating a platform to become more proactive and predict future requirements based on real-time signals
- Fostering effective inventory scheduling.
- Improving financial management
- The supply chain becomes more accessible and business processes more optimized.
Generally, digitization offers greater efficiency, improved customer experience, and a more significant outcome to many areas of business. This is true of supply chain digitization as well. Hence, supply chain digitalization is the best step to take amid anxiety concerning the impending rail strike and its effects on an already fragile supply chain.