From the rise of e-commerce, with companies like Amazon reporting profit increases of nearly 220% in less than a year since the first lockdown, to more recently the spike in oil and gas prices, supply chains have faced unprecedented pressure in recent years. .
Fleet providers face a particularly challenging time as they must meet the transportation demands of the booming e-commerce industry, while dealing with rising operational costs due to soaring fuel prices.
These disruptions should be long-term issues, as the pandemic has left a lasting legacy on consumer and retailer habits, and the crisis in Ukraine unfortunately shows no imminent end. To address persistent supply chain issues, companies need to assess supply chain risks and develop resilience programs to ensure they are prepared for any future challenges.
When trying to mitigate the effect of global events on supply chains, it is essential to create a holistic strategy that considers all aspects of the supply chain.
Supply Chain Risk Assessment
Modeling and assessing supply chain risk is key to building resilience and reliability across the entire network.
A supply chain risk assessment should look at the chain from suppliers to consumers. The goal is to identify pain points that are overly dependent on a specific vendor, geography, or technology, which have the potential to make it more susceptible to collapse in the event of a chain disruption.
Once the risks to the supply chain network have been properly assessed, it allows companies to see where strategies need to be put in place to mitigate potential risks.
Switch to alternative fuels
In the case of fleet providers, a key issue may be that vehicles are dependent on gasoline or diesel. As evidenced by the Ukraine crisis, reliance on traditional fuel sources leaves companies vulnerable to changing market dynamics. With petrol prices reach 189.4p/litre in some parts of the UK, using petrol alone is no longer a financially viable option. Fleet providers should consider using renewable energy to power their fleets to avoid falling victim to fuel prices that show no signs of slowing down.
Businesses around the world are making the transition to electric vehicles (EVs), as highlighted by research that predicts that by 2025, 30% of all vehicle sales will be hybrid or electric. However, there are currently barriers preventing electric heavy goods vehicles from being a viable option in the UK, including lack of infrastructure and charging capacity.
At our recent annual supply chain debate, David Cebondirector of the Center for Road Freight Sustainability and professor of mechanical engineering at the University of Cambridge, explained that an electric road system (ERS) would be the best way for electric trucks to be a feasible option for fleets.
An ERS, referring to an electric highway in which trucks would charge their vehicle via overhead cables during their journey, would cost £20bn of investment. However, this would drastically reduce both the size of the batteries and the scale of the charging infrastructure needed to make electric heavy-duty vehicles a possibility.
Some companies are already using electric trucks for short-haul trips. Waitrose has developed a fleet of electric vehicles with wireless charging technology. The retailer’s move is a promising step towards greener supply chains and a reduction in the UK’s reliance on expensive fossil fuels.
Nearshoring is also an effective method to reduce risks within the supply chain. This can be of particular interest to fleet companies, as it involves reducing the distance vehicles have to travel between different aspects of the chain, while reducing operational costs and minimizing geographical dependencies.
Another issue facing fleet providers is the cost of new vehicles. While it has been high for several years due to the pandemic leading to a shortage of semiconductors, the Ukraine crisis has the potential to further aggravate the problem. The world largely depends on Ukraine for the manufacture of neon gas, a key material involved in the production of semiconductors. 25-35% purified neon gas in the world is supplied by Ukraine alone. As a result, car factories were forced to stop manufacturing, making new vehicles very expensive.
Given the continued disruption to the fleet industry, suppliers will benefit from sourcing from a variety of vendors and using alternative materials where possible.
Prepare for driver shortages
Shortages of drivers and labor in general have plagued the logistics sector since the start of Brexit negotiations. However, the Ukrainian crisis has also intensified this problem, logistics companies across Europe have experienced a loss of drivers, as around 105,000 Ukrainian drivers are employed throughout Europe.
In times of global disruption, fleet providers have to rely on their domestic workforce, something the UK has struggled with in recent years as it faced a continued shortage of drivers. To deal with a shortage of overseas drivers, improvements need to be made to recruitment efforts in the UK. This can be done by improving the working conditions and remuneration of drivers, investing in training and increasing the number of driving tests available.
Having processes in place that account for long-term supply chain disruptions is key to minimizing pressure and strain on operators, especially fleet suppliers. It is important for companies to implement strategies that ensure that the entire supply chain network can respond quickly to changing geopolitical circumstances. Organizations that can adapt quickly are those that will retain their customer base and have sustained revenue, despite broader supply chain crises.
Author: Phil Reuben, Executive Director of LADDER