What Is The Bullwhip Effect?

Large ship with 2 loading cranes and cargo.

Several companies have been dealing with nationwide fuel costs and supply chain issues since the 2019 Pandemic. These issues continue to affect businesses and consumers across the country. While it seems supply and demand are returning to normal, the freight market continues to slow down. The bullwhip effect is partly responsible for the supply chain issues affecting both businesses and consumers.

What Is the Bullwhip Effect?

This strange term is actually the perfect way of defining what is really going on with supply chain issues. As inventories rise and freight costs decline, an imbalance occurs. The same thing happens when inventories lower but freight costs soar. Occasionally, companies will produce an excess of materials and products to fulfill a high short-term demand. This is known as the bullwhip effect. 

This issue happened in 2020 when the United States Government issued trillions of dollars to Americans to sustain the economy. Americans then used the money on supplies and other physical goods. However, China, a major United States supplier, was barely operational and couldn’t meet the supply demands. Since people were still consuming goods, the demand was rising, but supplies were low. The result was a lack of inventory. The money was there, but the supply was not. 

How Is the Bullwhip Effect Impacting Inventory?

During the start of the Pandemic, when the Federal Reserve flooded the economy with cash, retails began ordering more products to meet demands. Supply chains then ordered more to meet retail needs. This began an upstream flow of orders to balance supply and demand. However, freight shipping was also an issue and retailers and manufacturers ordered more when they didn’t receive their orders. This only increased the problem. 

The bullwhip effects continue to impact inventory issues not only with everyday goods, but also in vehicle production. Now that the economy is finding balance again, consumers are not purchasing an excess of goods. They are enjoying activities and services as before the Pandemic. The problem is there is still an excess of goods in the market that were previously ordered. As inventories increase, there is nowhere to transport them because of a sudden slow in demand. Therefore, freight demand has slowed down and warehouses overflow with products. 

Consumers Are Slowing Down Too

The bullwhip effect is also impacting inventory as consumers slow down due to high gas and food prices. Consumers are taking advantage of other services if the price is right for them. As a result, shipping companies have lost shipping urgency because there is less need to fulfill orders. Railroads have also slowed down shipping times, leaving other companies desperate to fulfill orders. 

What You Should Do For Your Business

If you’re a business owner, the bullwhip effect may seem daunting to your business plans. However, supply and demand will balance out once again as inflation cools down. In the meantime, there are some things to keep in mind as you move forward with your business. Partnering with a shipping logistics company can help you navigate shipping issues and timing for your products. This is helpful, especially when the freight market slows down. You can still meet your customers’ needs. 

Managing Shipping Logistics

When you’re looking for a company that can help you manage shipping logistics, like time critical shipping, our team can help. Trifecta Transport is a professional company that can help book, track shipments, and more. With freight shipments slowing down, we can work with intermodal rail transport and help you lower costs. We offer a wide range of services and help you make the best decision for your business. 

Trifecta Transport Can Help

If you’re ready to partner with Trifecta for your business shipping needs, contact us today. We are happy to discuss your needs and offer a solution that meets your business mission.