Talking Supply Chain: The Strait of Hormuz is open, but normal is not near

Speaker A: Foreign.

Speaker B: Welcome to Talking Supply Chain. In each episode, top supply chain industry professionals and the nation's top thought leaders join host Brian Strait and share their unique insights to help supply chain managers stay one step ahead of their competition. This is Talking Supply Chain.

Speaker A: Hello, everyone, and welcome to another episode of Talking Supply Chain. I'm Brian Strait, editor in chief of Supply Chain Management Review, and thank you for joining us today. Well, the Strait of Hormuz is finally open. We think, uh, the ceasefire agreement between the US And Iran was designed to open up the strait pending further discussions and a final agreement, which still may be a few months away. But what happens now? So today I'm being joined by Eric Fullerton, Vice president of Data Insights at Project44, one of the world's leading supply chain visibility intelligence providers. And we're going to look at some of the data that Project44 has been tracking and what reopening a strait really looks like for supply chains moving forward. Eric, welcome to the podcast. Great to have you.

Speaker C: Thanks for having me.

Speaker A: Great. Um, excited to get into this and, and I think a lot of people want to know, what does this look like? I think we all assume it's just, hey, it's just going to go back the way it was, but that may not necessarily be the case. So, uh, let's set the stage a little bit here. And, and maybe for our listeners, you can, you may not really fully appreciate the significance of the straight of Hormuz, although I, I expect at this point we all have a pretty good idea as to how important it is to global trade. Um, but can you kind of explain why this corridor is so important to global supply chains and what has really been at stake during this closure that we've had during the war?

Speaker C: Sure, absolutely. And I think the, the last several months have been an education opportunity for, for those maybe not in the know, but there is still a lot of nuance around the strait. And this, this region, I mean, the, the, the Strait of Hormuz itself is, is quite narrow. You know, when you think about it, it's 21 miles at its narrowest point, and the volume and importance of goods that flow through that passage. I mean, we're talking about probably just over 20% of the world's traded oil, 20% of natural gas. And that has been getting a lot of play. And it's natural, I think, to be focused on oil and natural gas because we see it at the pump, we see it when we look to book a flight, and these are very tangible things for consumers. But what is also really significant about this region is that it's not just oil and natural gases. It's the actual. It's the petrochemicals, it's the. The byproducts. And the word is feedstocks, which is like the raw materials. These are the raw materials that manufacturing runs on, you know, globally. So we're. We're really looking at, you know, 30 to, depending on the. The metric. Right. Maybe 25% of those petrochemical feedstocks globally come from Hormuz. Right. And. And one other thing I'll add here, just for context is, uh, urea. Now, again, maybe not everyone's first thought when they think about the Persian Gulf. The 40% of the Erie exports across the globe come from the Persian Gulf. And this is the primary ingredient in fertilizer. Right? So this is an incredibly important, you know, material that's being built in that region, and it actually becomes a food security story. I'll just give you one quick stat here because I was, you know, been doing a lot of, you know, research around this, and if you look at the country of Qatar alone, it's a very, very small country in the region. Um, and, you know, in terms of the production, there's. There's other countries that do more. The production from Qatar on synthetic and nitrogen fertilizers was feeding 45 million people in the United States, Brazil and India alone. That is one country in a country that is full of larger, bigger producers. Right. That. That. You know, several of those plants have had to close. They've had to shut down, they've reopened. But the challenge is this, getting goods out of there in a way that is not significantly delayed. So, yes, it's about oil, yes, it's about gas, but it's actually about a lot of these downstream raw material components from petrochemicals and into, you know, know how the world gets fed.

Speaker A: Yeah, I. That's. That's so, um, interesting. I. I've seen some articles about farmers, for instance, and. And what they've been dealing with and whatnot. But I, I think as Americans, we focus on the. The one thing that we can see we. That affects every one of us directly, and that's gas prices. Right. So we. I think that's always what we kind of focus on is oil, and that's what we associate the Middle east, um, but fertilizer in other areas and other things. And I think we'll get into some of it a little bit. A little bit. Um, obviously plays a. It was a big factor as well in Some of this, it wasn't just oil. So um, project, project 44, you guys did some reporting and, and you tracked 81,000 rerouted shipments I believe during the disruption. Keep counting and counting. Counting not over yet. Um, can you talk about some of the trends as you guys looked at this data across this time frame? What, what some of the most significant trends that you observed as we went on this and did they change at all as the shutdown went longer and longer?

Speaker C: Yeah, so, so they did change it all. Uh, they've changed consistently. One thing I'll share too is just, you know, the most recent week that we did the reporting on this, we had a reported, you know, 3,950 rerouted shipments, diversions. And just for context, that's, that's reduced significantly since earlier in. It's still over 250% higher than the pre conflict baseline. Right. So even now as things are getting smoother, they're, they're still really, really high. But if we zoom back out, right, what was really interesting is the, the way in which these diversions actually happen. So when you think about a major global disruption, you would expect that, that first week is where you're going to get in probably the second week. A really high volume of diversions and disruption. Routed, rerouted shipments. Right. What was interesting, and that's what we saw by the way. If you look at like the Red Sea or if you looked at something you know, which is more isolated, like the Baltimore Bridge, right. It was a ton uh, of diversions immediately and then that, you know, tapers off significantly because of the uncertainty in the area. Uh, this was quite different. The, the actual high for the number of weekly diversions was week four. So over uh, 9,500 diversions in week four. And then week five was actually the second highest. So that is very unique.

Speaker A: Right.

Speaker C: Usually there's spikes and then things taper off and maybe they don't get exactly back to normal, but they, they kind of smooth out over time. That was not really what happened here. Uh, we were seeing a really significant volume and then some kind of like ups and downs in the volume of reroutes that were happening. And that was because a lot of the, you know, the uncertainty and the proposed ceasefires and the back and forth decisioning and a lot of carriers were kind of like maybe we should stay and see how it goes. And they're idling and then it's like uh, maybe not. And then there's this signal and that signal. So uh, that is really unique when you look at disruptions. And we've mapped disruptions, uh, you know, since, since COVID and ever given, uh, at uh, Project 44. And that is something that really, that really stood out to me is in terms of being uncommon. And the other thing is just the, the places that, where the rerouted cargo went, it just seemed to change a lot.

Speaker A: Right.

Speaker C: Usually there's a few pathways or avenues, but we would see, you know, certain places spike in one week and then drop significantly in the other week. And uh, it was, it was quite surprising to see how varied the network response was.

Speaker A: So I was going to ask you, um, about surprises. That sounds like that's one of them. I don't know if that is a, is that tied to maybe capacity in those other regions. They just couldn't continue that level of uh, you know, new shipments coming in over a certain period of time. But I, I think broader question is, were there other surprises that you guys saw as far as the, how shippers or, or some of the carriers responded to what was going on there?

Speaker C: Yeah, I think. Well, there was other issues too, where it wasn't just about the, the ability of a port for it to absorb, you know, freight. There were freight. There were some in like the UAE as an example that uh, were primary alternatives and then were attacked. So there is a lot of like, that was a, that's just a factor that you, is really hard to plan for and think through. If you're a career, uh, you know, your responsibility and your focus is I, uh, need to get the freight to the place where it is supposed to be. And if not it should be a close place or a place where there is an infrastructure where that can come off the ship and overland to somewhere else. Um, so that, yeah, I would say those, those were kind of some of the surprising components. Um, the other one I would say kind of relates to something else around the secondary impacts that I think were, were quite surprising. It's just like the stuff that people don't talk about. So we're talking a lot about the Gulf and we were talking a lot about that region and you know, Jebel Ali and the, you know, Jeddah and those types of ports. And um, what we saw with India I think was quite surprising. The, the level that the disruption did not stay in the Middle, Middle east and propagated outwards into those, those Asian port networks. And, and that's still, that's still showing, showing up today. Um, of all of them. Navi Mumbai, which is a massive container port in India, was probably the most Affected it went up to about 15 days as of recently, you know, 260% higher than, than pre conflict in terms of the actual dwell times. You know, that is a, that for a port of that size that does that amount of volume to see that increase in dwell is pretty significant. I mean we saw in trend shipments and overall as well that you know, for a port port that has infrastructure and is used to high volumes to more, you know, to triple in terms of the dwell times. Uh, that was definitely an eye opener for me.

Speaker A: Yeah, I, I think we, you know, we were focused on what was taking place in the Middle east. Right. And, and, but supply chains are global as you mentioned. And so you know, what happens in one part of a supply chain does have an effect elsewhere in that within the supply chain. And you know, you just kind of mentioned your shipments going to India or wherever else. Um, was that the biggest secondary type impact that you saw or were there other things that you guys saw on the global stage maybe that we did not because we were so focused on what was going on in the Middle east that we weren't paying attention to how this was impacting further down the supply chain?

Speaker C: Yeah, the, I would say I would probably put the Navi Mumbai at 1. But I think the other one that is quite interesting is the kind of like the long tail restructure. Like all of these things kind of have to go somewhere. So you know, when you think about beyond Asia, we also saw the Cape of Good Hope which was a very, you know, and still is a common route to route around Suez because those attacks also uh, began or anew when the things, uh, the issues in the Gulf started to occur with Hormuz, that Cape of Good Hope vessel traffic lane and route that increased about 41. Yeah 41% above the pre conflict baseline. So it was already higher. Um, but that was another one where you, you know, you kind of, it's interesting to see where these things are going to end up and go. And that was a, that was a pretty significant one versus more people doing overland or you know, going to some of those, those ports that were closer and dropping them off, actually rerouting around the full Cape of Good Hope at that percentage. Like I think you would always expect to see an uptick, but that's, that's pretty high.

Speaker A: So I want to ask um, a kind of a two part question if you will, on normal. Right. And what normal is. Um, let me start with the first part. So as we're recording this out, the straight is basically open I, I think there's still some residuals, um, going on, but in essence stuff is starting to flow through it. So the simple question, right? How quickly will carriers return to their normal routing patterns through that area? Is that something you expect to see quickly or do you expect, um, residual effects to last for a while? You know, maybe it's even a trust factor, you know, in the area. Do we trust sending our ships through? I don't know. But how, how quickly do you think that normal, some semblance of normal returns?

Speaker C: If all goes well, I think we're probably looking at normal in three months.

Speaker A: Okay.

Speaker C: That's for, you know, the, When I think about, like, carriers and, you know, broader ecosystems, it's possible. It's possible. Um, now that's a heavy cop, Heavily caveated statement, right? Like right now we are seeing some tankers move through, some oil tankers and some smaller ships. The, the trust factor that you mentioned, Brian, is huge. And it's actually not just trust. It's, it's funny. It actually is very likely going to come down into to price. So what happens in these instances is, you know, the insurance companies, in order to ensure these, these carriers and the vessels themselves, they have a, uh, you know, an insurance cost that is instituted during times of, whether it be, you know, official war or disruption or there's, you know, a threat to the, the goods and the uh, you know, the people operating the vessel itself. And it is very expensive. So it's not just about, hey, we trust that we're going to move through here and everything is going to be safe and fine. It's, it's also, it's going to be very expensive for me to do that right now. Right. So if I have, you know, what's interesting about Hormuz is like, you know, there's nowhere else to go. Right? Like, it's not like Suez or like there's, you know, there's a path all the way through. Like it's just a, it's a bubble in there, right? So like, you can go in but you can't go out type of experience and for. And it's also lasted a long time. So what's been happening is that carriers, and by default, also like shippers and 4 PLs logistics service providers, they have been finding ways and methods to get goods generally to where they need to be, like to pick them up. You know, they're probably delayed and it's going to be more expensive. But in general, like, things are still kind of moving and they're moving overland or they're getting dropped off at different ports and they're, you know, there's some expediting here and some prioritization there. But because this has been happening for so long, the question is, well, like, yeah, the way we're doing it right now probably isn't perfect and we have to drop it off at this port and then, you know, expedite it overland, which is probably longer than we'd like to do. If we could really just drop it off, you know, at a closer port where we have operations and, and that's probably better. But is it worth it? Yeah, you know, for the first couple weeks, almost certainly not. Um, both in just terms of like the hassle and then also just the cost, like the premiums. It's going to cost more money to ship. Uh, it's cost more money. Fuel impact is still happening and will continue. The rates, this capacities, like all this stuff. And we can talk more about some of that later. But you know, it's trust, but it's price and it's just like, you know, at what point is it actually worth it to, to operate back in that region? And I think everyone will be pretty reticent.

Speaker A: And, and it goes to the broader question. I think I've had a lot of discussions that we talk about, um, with supply chain leaders about resilience, right? And it's like, do we put all our eggs back in this basket of go through the straight again or. Some of the solutions we have now may be more expensive, but maybe only half that we said. Maybe we only said half our products through the straight and the other half go these other ways now so that we don't end up in this situation.

Speaker C: Exactly. That's exactly right. And it's ah, it's all about the, the risk exposure that you're willing to take for the type of goods that, you know, need to or would benefit you to move through there versus, you know, a little bit more expensive and maybe a little bit longer overland elsewhere. But um, lower risk profile and yeah, maybe it's a little faster. So.

Speaker A: So the second part of that question I wanted to ask you about what type of conditions we need to see before we start to get back to some semblance of normal. Um, it sounds like, you know, insurance and pricing is going to be part of that. Um, but are there other things that we need to, to look at that can give us an indication that it is safe and easy to travel through the Strait again?

Speaker C: Yeah. So as you mentioned, right, Physical access is the first that's the first thing. And uh, you know we, we keep our fingers crossed and our, our bets hedged, but that looks positive. The commercial confidence as we did just kind of touch on that's, that's harder to restore. Right. That does take longer because of those war insurance premiums that are on those Hormuz transits. Right. Right now. Um, and it's a very similar pattern that we saw previously. Just because the physical access is there doesn't mean that the economics of that situation will work. But the other component is you need port infrastructure back online. So if you look at uh, Jebel Ali as an example, she's a major port in that region. It's been operating at 4% of normal volume and it has a backlog, um, of dwell that's been in the mid 30 to upwards of 40 days. Right. So just like that's just not, it's not operating properly. So that, that's another thing like the equipment being repositioned in a backlog at some of those receiving ports like Navi Mumbai still at that 15 days. Singapore is, you know, uh, 2x, you know, about, about 8, about 8 days in terms of the dwell. And then there's also the, you know, the deferred orders have to kind of work their way through, through the system. So, you know, you kind of mentioned it too. Like the, the back to normal is probably the wrong frame, right? Carriers building some new lanes, shippers are building new relationships with suppliers. You know, freight forwarders are building new routing playbooks. You know, some of those changes are, uh, will probably stick because they're resilient. And then, you know, others, it's going to make sense to, to transit back through there and eventually, you know, we'll, we'll, we'll see that flow increase. But it's, it doesn't seem like it's going to get back to that level. That could be even, you know, that's probably even further than, than three months. And three months is really the, the normal, like normal operations. Like ah, yeah, this is, this is.

Speaker A: So you mentioned some of the ports being backlogged, right. At 15 days, et cetera. Um, is that the biggest bottleneck we face today? And I guess I related that is that similar to kind of the things that we've experienced in this country when we've had west coast port strikes, right. And, and the ships back up off the port because of that, you know, and then it takes us a while to clear all those ships through. Is it the same kind of bottleneck that exists in these ports down in the Middle east as well.

Speaker C: Yeah, the cause is different, but the issue is just the, you know, when you divert a vessel, you just, it's supposed to go to one location, right? And then in the middle of the, in the middle of transit, you change it. So it's, it's hard for, it's hard for them to keep up. Right? They just, at, uh, at uh, some of these ports, there's just vessels that they were not planning for. There's labor issues, there's staffing issue around that. There's also just like a, there's only so many births that you can have. There's only so many, you know, places that these things can go. So some are just kind of, um, to use a non industry term, hanging out, waiting for an opportunity to, to unload there. And that, and that's, and that's significant. But um, it's, it's the exact Right. Corollary between what we, what we've seen in west coast, west coast ports. Just that the cause is different.

Speaker A: Are we, are we going to see the same thing with containers? I know when Covid hit, we had that problem. We had a lot of containers, empty containers sitting in areas where they weren't needed. You know, how to get them. Is that, is that an issue as well if these ships have been diverted to other locations? Or is that something that's easily solved?

Speaker C: Yeah, I know we've been actually trying to find some good ways to, you know, we have some strict standards on the types of data that we'll produce, but we've been doing a little bit of early research on kind of like the, the lost container phenomenon. And it's. Yeah, it's a little, it's a little tricky. Um, and I think that that's a risk. It's just, it's a little bit hard to quantify, right. Um, how many containers may get lost and, and where. But anytime you have 81, 000 shipment diversions, there's going to be some, there's going to be some myths.

Speaker A: Right?

Speaker C: There's going to be some things that uh, don't end up in the places that they're supposed to be. And in the end the, the businesses on the end, like they are going to have to make some decisions of, well, if I can't find it, uh, how much effort am I going to go through to find it? And if I do go through this significant effort to actually track it down by calling the port operator, if, um, you don't have the right intelligence or insight in place and uh, I could plug P44 there, but I won't. For the purposes of the podcast, you essentially have to make a decision on whether or not it's going to be worth it. Like, do we need to track this thing down? Can we, can we go find it? You know, this, this happens pretty much every time. And, you know, Baltimore Bridge, they just drop stuff. You know, when Baltimore Bridge collapse, they just drop stuff off in different islands and people are like, we're never gonna get, like, it's, we're never gonna get that. We have no idea where it is. So that's, that's always a risk.

Speaker A: Um, but not as easily quantified. Quantifiable.

Speaker C: Yeah, it's, it's, it's, it's hard by its very nature to quantify things that are missing, um, especially because the reporting on it's a little bit inconsistent. Um, and, you know, you can see like, there's, there's like a misplaced which, like, we actually can have some insight into of like, hey, where, where are things? Where did things end up that they weren't expected to or shouldn't? And then you can, we can actually provide our customers with that, which is really useful for them. Um, but, you know, not, not everyone has, um, you know, the technology to understand where things are.

Speaker A: Yeah. So you mentioned you didn't want to plug Project44's data, but I'm going to ask you a question about Project44's data here, uh, to give you a chance to plug it. Um, what's your data telling you about things related to capacity and rates? You know, what ocean capacity could be, vessel availability, freight rates. What does that market kind of look like for shippers out there thinking about, hey, I need to move stuff in the next few months. What kind of environment am I looking at?

Speaker C: Sure. So the answer on capacity and freight rates is, uh, if we start really simple, that, you know, freight rates are up and they are likely to stay elevated for a while. The, uh, reasons and rationale there is, is beyond Hormuz. Um, part one of this is that, you know, peak season for ocean is, is in full swing and will continue. We've seen that, you know, carriers in some instances are starting to pull little capacity out, out of the market to keep, to keep rates high. And because of the tariff situation, throughout the course of the year, we've seen spikes of, uh, front loading cargo and pushing cargo and then not moving cargo. We are in that position now where it looks like we're seeing another front loading of cargo ahead of some Potential tariff changes that could happen, uh, in, in July and that pulls the demand forward, creates pressure, likely would have shown up later in the summer. So, you know, Hormuz is nice, right? We like it. It is a, it is a mood boost. The less geopolitical risk is a great thing. It means, you know, more stable fuel costs. That helps carriers, that helps shippers, that helps everyone. But the relief there is not immediate, you know, especially for, for larger shippers. These ones have, you know, annual contracts and there are adjustment factors baked in, but still, uh, that, that, that doesn't just happen and change overnight. And I think the expectation is there's some disciplined behavior around capacity rates are elevated there, there are some demand wildcards like usmca, the potential tariffs coming through, front loading, Hormuz reopening, hopeful, smooth glide path. But um, I think, yeah, yeah, we'll see how, we'll see how it goes. But, but optimism is always a good thing and good signals are good signals no matter what.

Speaker A: Yeah, I, hopefully we can get through this, um, and move forward. You mentioned usmca. I mean, I don't hear a whole lot of people talking about that, but I think that's going to be a big issue in the next few months that people aren't really paying attention to.

Speaker C: I think so too. Yeah, yeah, it really does.

Speaker A: Um, um, ah, I think that has the potential to really disrupt North American trade, especially, um, depending on how that goes. But um, sticking with the idea of risk just for a minute, are there any particular industries or particular supply chains that you think are still going to be especially vulnerable even after we kind of return to normal and the straight really reopens?

Speaker C: Yeah, I think what I would say is there, there are a few categories that could stand out as being more vulnerable than others. And you know, obviously because of what we spoke about earlier, it's those, those petrochemical and plastics, heavy plastic dependent manufacturing is probably the most, the most structurally exposed. And then, you know, there was, there was a lot of issues around plants in, you know, in Singapore and Indonesia and South Korea, like right after, right after the closure. Um, when you think about the straight normalizes that, that feedstock supply chain doesn't normalize industry like instantly. The, the downstream effect on plastic is let's, I mean it's everywhere in every aspect of, of all manufacturing. So I think it's. Automotive is a concern always just because of the number of raw materials and pieces, elements that it takes to make a car. Um, and then obviously there's other things like, like medical devices and Things like that and consumer goods and packaging, those are probably more likely to just be felt on the, on the price side. Right. So I think it's, it's not like, oh, this one industry is at huge risk from a petrochemical perspective. It's likely that, you know, if, if plastic, if raw materials are more expensive and packaging is more expensive than the product and transportation is more expensive. Right. The fuel, fuel is more expensive. Uh, then what it means is that it's going, it may take the same amount of dollars labor wise to create something, but it won't take the same amount of dollars to, to make something as it used to. The, the ingredients in that thing are more expensive and moving it around the globe is more expensive. I mean one, one sneaker, you know, circumnavigates the globe probably two or three times before it's actually the sneaker that you think of in, in the, in the Nike or Adidas store by your house or whatever that might be. Um, so what happens there is that that cost tends to get, you know, passed on and it, it's not always perceptible, you know, like a $94 shoe versus a 99 point, you know, like you need like the consumer, you know, feels it, but it's not such a direct, direct tie. The, the other place though, you know, agriculture and food production, that is a serious risk. We've, we talked about fertilizer disruption happening. You know, India buying a lot from that region, you know, Australia depends on the uae, Qatar, Saudi Arabia for, for its food supply. We've seen the prices of that fertilizer jump. The concern, and I don't want to be too pessimistic, is there is still fertilizer that's out there, but it gets more expensive and then food's more expensive and it tends to be some of the regions that maybe will rely more on the synthetic, lower cost fertilizer that will be negatively impacted. And that, you know, that, that impacts human beings, which is, which is never good. Um, and USMCA is another one that, that, that review, I think, um, has the potential to be explosive. Uh, and there's a lot of uncertainty around that. Where I think if you're not worried about that as a shipper, then you as a carrier, as a person who works in the industry, then you probably should be.

Speaker A: Yeah. Yeah. At least now though, I know why my, uh, shoe is costing me $175 for my sneaker.

Speaker C: Yes. It's not just that it's really cool looking. It also, yes, that's right.

Speaker A: Um, we, we talk, and I mentioned this earlier, um, we, we spend a lot of time talking about resilience in supply chains and I guess maybe someday we'll get to the point where all supply chains are resilient by design as opposed to waiting for some disruption to take place and then create resiliency. Um, and as we've gone through this these last few months in this current environment, is there anything that you've seen from data or anecdotally you've talked to organizations that maybe kind of manage through this disruption pretty well compared to some of those that struggled. Is there things that they looked at or are there things that they may have done in any way that helped them get through this better?

Speaker C: Yes, I think there's uh, a common theme and it's going to sound quite simple, but the reality behind it is probably more complex. The companies, the shippers who are able to essentially instantly see what was happening to their inventory and their supply chain when these things occur and then make decisions about um, it are the ones that are, that are well equipped, right, for, for those who, you know, who were having challenges, right. They weren't like, it's not like they were short on people or effort. They were short on signal. So they didn't know which shipments were exposed, what inventory was associated with those shipments, which suppliers were affected, which lanes were at risk until that problem had kind of propagated through their network. And what that means is you spend a lot of time firefighting and if you're calling carriers or ports when they are dealing with this type of situation, you're going to have an unsuccessful experience to say the least. So you know, what we've seen over the past several years, this has really been true since post Covid and beyond, is investing in infrastructure to be able to see and make decisions and take action on your supply chain in real time, identifying that exposed in transit inventory within minutes or hours of that closure, know what carriers are still moving, what ports are absorbing the rerouted cargo, which alternate lanes are viable, and then, you know, having some of that decision infrastructure. Hey, can we pre position inventory here? Can we activate some backup suppliers? Can we reroute these things before all of these delays hit the dock? That, that helped separate that, you know, supply chain. People, I will say are a very resilient group. They are problem solvers by, by nature. And that is, that is certainly very helpful in their, in their trade. For better or worse. They are a little uh, battle scarred from the past, you know, six plus years but that means that, like, they're, they're used to some of these things. But it's not just the people that process it. There's also technology in place. And, uh, those who have started setting this stuff up years ago are the ones who are able to look in the platform and say, wow, I can see every piece of intransit inventory that I have all across the globe, and whether or not it's affected by the closure in Hormuz or this labor strike that's here in, you know, another place in Europe. And, and that is the advantage, um, because then you start to make intelligent decisions based on that information. Maybe, you know, sometimes the best decision is actually one that, you know, knowing that you don't need to make one. And whenever a disruption happens, there's this natural inclination to say, like, it's disrupted. We need to expedite everything, and we need airframe. We need this and we need that. And the answer, um, might be maybe, but also perhaps not. And where are the areas where you can actually save significant dollars by operating things a little bit more efficiently or more effectively? And you don't need to expedite certain things because you have the effective safety stock coverage there or those elements and those decisions, um, putting people empowered to do that is a huge advantage whenever there's a disruption.

Speaker A: So it's really, I mean, what you're really talking about is visibility, right? I mean, it's, it's getting the data and then having the visibility into that

Speaker C: data that is, that is definitely a key part of it. But I think it's also about taking action. And visibility has been a long journey for many, for many companies and, um, and organizations. And, you know, it's still part of what we do today, but it's really like, so what, uh, you know, and you have to be able to say, all right, well, I am going to move this freight, or my lead times do need to change and I need to feed this signal into my upstream inventory planning system, or I need to fe that signal downstream into my end customer who's still waiting for this and needs the information. Um, how do I manage by exception in real time? So, yes, it's absolutely about visibility, but it's also about exception management. It's also about being able to source new lanes and new carriers at good prices that are going to help solve your problems. So you have to layer on the action. And then ideally there's automation that sits on top of that so that certain pieces are, are being recommended. It's like, hey, you have this amount of inventory at risk due to this. You should do this. And that is when, uh, people stop waking up and calling carriers and looking at spreadsheets and, you know, hitting the phones and trying to figure out what's going on and start making decisions based on the data that's at their fingertips. And that's when supply chain people are strategic, which is what they're supposed to be.

Speaker A: If they don't have to make all those calls and all those decisions, the coffee supply chain may go down. Right. We need a lot less coffee.

Speaker C: That is potentially one of the downsides. I think the, I think the, the, uh, str. It might be a. Strengths and weaknesses. You know, we'll do a spot analysis there. But that, that, that part is probably true, but they'll probably be happier. So maybe there's, uh, maybe there's other elements.

Speaker A: It's a trade off.

Speaker C: Yeah, that's right.

Speaker A: So, um, I want to ask a couple questions just moving forward as we wrap up in the last few minutes. Um, as you guys kind of look at the data that you have today, is there. Do you have an outlook for what a global supply chain should look like through the rest of twenties, not just Hormuz, but what is the global supply chain looking like for the next six months of this year?

Speaker C: Yeah, I mean, I think there's probably some trying to think of the best way to phrase it. It's like cautious stabilization with ongoing volatility. Uh, so it's like.

Speaker A: So the status quo.

Speaker C: Yeah, I mean, essentially. I mean, look, if you, if you work in supply chain, uh, in this industry, and you are not prepared for anything at any point in time, uh, based on everything that's happened over the past several years, then you really haven't learned anything. So, you know, this, this concept of the. There is no going back to normal or, you know, we have customers, they call, they say, you know, we use you to help us navigate the never normal. That's true. Volatility is everywhere. I mean, there's going to be more weather events that are about to happen. There's El Ninos. There's huge impact that is going to disrupt the supply chain, which now is more global than it has ever been. Um, but the geopolitical risks are just a huge cloud that does hang over you. So being able to smooth some of those things out just eliminates a very unpredictable variable from some of these decision makings. And that means that there's some gradual reduction in the structural rerouting pressure that has been driving those elevated rates and Those, those congestions. But again, we already talked about like that's happening right around peak season and there's, there's rates are elevated and the World Container Index is pretty high right now. It's high, as high as it's been in probably the past year and a half or so. And further increases are, are expected. Um, the impact, like gas doesn't go down overnight. Neither does oil. Neither do oil prices.

Speaker A: Right.

Speaker C: There's still some risk there. Um, it's, it's not like this smooth return to normalcy, snap of the fingers and then, I mean, look at the Red Sea. It's a separate and open question. The Houthis have not stood down, although I haven't checked the news. And since we've been talking, Brian, so you never know what's going to happen, uh, in a given day.

Speaker A: Yeah.

Speaker C: If there's no durable resolution there, then those Asia European lanes are structurally impaired. The gate, the Cape of Good Hope is the elevated cost longer alternative which, you know, you can probably absorb but is still inconvenient. And you know, the broader macro picture, usmca, there's. If things are going to continue, I don't think they're going to, if that gets renewed and not renegotiate, I don't see how the tariffs stay in place based on what, at least what Canada has already said about USMCA and what needs to happen there in order for, for that to get, you know, agreed upon. There's going to have to probably be some changes and some structural implication in terms. But, but, uh, the other thing is like, you know, some of this stuff has already changed. Like, you know, this is a concern. Like Canada's already finding new partners, so is Mexico, so are other countries. They're finding new partners, new suppliers to do business. So it's like the idea of going back to normal and like we'll all just, you know, have the same volume that we were always doing. It's like, yeah, the stuff is always going to keep changing because, you know, as you start to close pathways, new pathways open and you know, you want, you want, you want, you want us, you know, the United States in general, like you want. That is a country that wants to be on the right, on the right side of things. So, like, we'll see how that goes because it's going to be really, it's going to be really interesting in terms of USMCA and what, what happens there. And then, you know, I think we'll probably likely see front loading and transitioning from that one. You Know, the. Just in time to more resilient, but people are still cautious, so they stack more inventory than they probably need. And when something like Hormuz, um, happens, it's hard to blame them, you know? So. Yeah, I mean, I think that. Yeah, yeah, sorry.

Speaker A: I was gonna say I was, I was so hopeful that you would just go tell me, oh, everything's gray, the sun's shining, and every, everything's back to normal.

Speaker C: I was going to say that for the last question. I wanted to end on some optimism, but. Yeah, no, no, I mean, look, it's, it's important to be realistic with this. And like, uh, you know, we talk to people, we talk to our customers every day and they, they live and breathe this stuff and that, you know, of course, by, by, by default. And because of those conversations, so do we. And, you know, they're not pessimistic, they're just realists. It's like, look, this is how it's going and this is the situation we have to deal with. There's enough benefit to having a truly global supply chain from a cost and efficiency and resilience. Like, it's actually amazing what, what we're able to do. When we think about how all these goods move around the globe from all these different complexities, it's, it's actually quite a remarkable and impressive thing. And it's natural that in order to keep that, keep that up, uh, there's going to be some, there's going to be some bumps and some challenges that people have to work through.

Speaker A: So two more quick questions. Um, one very quickly, the supply chain managers out there, um, trying to gauge what stage in recovery we kind of are from Hormuz or the global supply chain? Um, are there any key metrics or data points that they should be monitoring over the next 30, 60, 90 days or so to give them some semblance understanding as to where the global supply chain actually sits at the moment.

Speaker C: I would look at the transit volume to the straight. You could, if you really care, you could probably look at it, you know, every day. Uh, you could probably also look at it at a, at a weekly basis or maybe twice a week to see what that vessel flow is, because that's probably going to tell you more than, than headlines, uh, more risk insurance premiums. Like, number one thing that's, that is a commercial confidence indicator that's going to really impact how quickly the volume of traffic returns. And then the, the Jebel Ali, the inbound vessel arrivals is a good indicator for Golf Network to cover recovery. So for 30 days. Like it's those things, I would say. And then when we start to look, uh, beyond that, it starts to be about those dwell times. Are we seeing the backlog clearing? Are we seeing that, ah, compounding. You take a, you know, keep an eye on that, that index or the, you know, the container, the container index to just see what's going on. And then I would say Cape of Good Hope traffic too. That's always an interesting signal as well. So, um, but for the first 30 days, which is what you asked for, take a look at that, that transit volume, uh, at least, you know, at least once a week, maybe twice. Keep a super close eye on those war risk insurance premiums. See what carriers are saying about those things. And then Jebel Ali inbound vessel arrivals, which we use, something that we publish on a weekly basis, um, that is a really good indicator on, uh, the goods moving back through, not just the oil tankers and things like that, but carriers.

Speaker A: Carriers, gotcha. So, and then to wrap up, one final question, um, bit of advice, if you will, um, going back to the conversation of resilience, right. Which is kind of the overarching theme and then in essence of what this whole conversation is. And building a resilient supply chain is part of this. So if you're a chief supply chain officer and you're sitting down with your team next week or maybe your executives or what have you, what's that one conversation, that one action that maybe we should be prioritizing right now based on some of the lessons we've learned in this latest disruption.

Speaker C: What I would say is, okay, team, next time a disruption like this happens at this scale, and there will be a next one, regardless of what, what, you know, how, uh, optimistic we want to be, how quickly. Actually, I would say I want to know what our risk exposure is to in transit inventory instantly. Not, uh, days like I need it, I need it day of. So when something happens and there's going to be a headline and it says straight up, Hormuz closed or new, you know, whatever the next thing is going to be, I want to be able to get an answer to say, what is my risk exposure to all of the inventory I have in transit? And I want it at the tip of my fingers. And I would start with that outcome and then work backwards from there in terms of how we're going to get it. You know, this is something that we've been working with customers, like, we have customers who have this today. Uh, and, you know, that's something that we, you know was that sits within, within the platform we offer and the disruption management capabilities. But if you don't have that, that is going to be the biggest pain for whenever something happens again. Because these, if you're a chief supply chain officer, you are going to get like it's called, it's the call, right? That could be from a, A, uh, coo, that could be from a CEO, it's a board member, it's who, it's somebody. And they're going to say, I just saw this headline. What's our risk exposure? And you can say this, this and this, and here's what we're doing to solve it. And that is going to completely change the way you manage disruption. It's going to lower the costs that it caught. Like it takes your team to handle those disruptions. You're going to have a much better and clearer sense. You're going to look like an expert in the room and you're going to be the person who's actually saying, and here's how we're going to overcome it, or here's how we're going to solve it, or here's how we've done to improve that. That is just, that's huge. And that's, that's what I would say and focus on. And that's um, you know, work backward from there because it's the companies that were able to build that infrastructure. To answer that question before the crisis hit, those were the ones that pulled up a live view of in transit inventory. They're filtering by lane, port supplier by crisis, know within minutes what's at risk and what decisions need to be made and where. So it's not, you know, what am I going to do about Hormuz, it's next time this happens, here's where we need to be. Let's work backward from there.

Speaker A: And so the answer is not, I'll hopefully get to you by the end of this week. That's not the right answer.

Speaker C: It's not? No. I mean you have to have it right there. That's um. And you know, this, this stuff uh, used to take like days. There's pictures of old war rooms and you know, whiteboarding and post it notes. And if you put the processes and you have some tech in place here, you are going to be able to find that stuff like in minutes. And that is just a massive benefit to managing these disruptions.

Speaker A: Great. Eric, thank you so much for the insight today. Appreciate it a lot. Um, final, final thing for you. Uh, you guys have a lot of data on Project 44, um, you touched on some of it today. Obviously, if people want to get in touch with you guys, what's the best method for them to do so?

Speaker C: Sure. So, um, I can say if people have questions about the, like this, the straight of Hormuz, or like, ongoing, um, issues that occur or happen in the supply chain, this is something we actually publish information on our website. It's called Supply Chain Insights. Um, so we actually publish these reports. It is free of charge to anyone. And you have, uh, a lot of great information there. Um, and then of course, like, if people are more interested in the technology, um, we are happy to talk to anyone about that. And just, um, you know, there's some. You just come to project44.com and you can reach out to us and we'll, we'll find that the right person to have the right conversation, whether it's, uh, whether it's me or someone else that, uh, in the business. So project44.com is the place to go.

Speaker A: Great. Thank you, Eric. Again, thank you so much for the time today. Greatly appreciate it. Enjoyed the conversation. Um, we are, we are out of time. I want to thank my guest today, Eric Fullerton from Project 44, and of course, all of you who took time out of your day to listen to us today. I greatly appreciate, appreciate it. Uh, new episodes of Talking Supply Chain come out on Thursdays. You can find them@scmr.com or wherever you get your podcast. So be sure to subscribe so you don't miss an episode. Until next time, this is Brian Strait. Thank you for listening.

Speaker B: Talking Supply Chain is produced by Supply Chain Management Review and Peerless Media. You can find it on scmr.com, supplychain247.com, iTunes, Google Podcasts, or wherever you find your podcasts. For more information on this topic, or to sign up for our weekly newsletter, a print or a digital subscription to our publication, visit scmr.com we hope you will join us for our next episode for Supply Chain Management Review. I'm Brian Strait and thank you for listening.