Port Closures and Slow Shipping: How Will They Affect Retail?
September 2, 2021 |
The C2FO Team
A perfect storm of global events with no clear end in sight will test retailers’ adaptability this holiday season and beyond.
Coming off a robust back-to-school season when anticipated sales exceeded $100 billion for the first time, US retailers are anxious about what the November-December holiday shopping season may bring. According to the National Retail Federation, the holidays and back-to-school shopping rank #1 and #2 in retail sales.
For many retailers, the often make-or-break holiday season may be undermined this year by a shortage of items that consumers want to purchase. Faced with the prospect of strong demand and potentially scarce supplies, it will hardly be business as usual. Besides gift items like clothes, electronics and toys, routine deliveries of furniture, appliances and autos will continue to be affected.
A limited capacity for shipping
Product deliveries are being challenged at every step of the supply chain. And not only from the point of origin to the final destination, but even before, down to the availability of containers that carry the imported products. While many often blame the pandemic, the root cause of late deliveries began earlier.
Around the world, shipping containers are stacking up at marine terminals. Record volumes are also straining airfreight, railroads and trucking fleets.
“There’s nobody to blame for this,” Tom Boyd, a spokesman for global logistics company Maersk, recently told The Wall Street Journal. “We don’t have unlimited capacity of ships or rail cars or trucks in the supply chain, so what you are seeing is just immense cargo volumes coming in every week and the system has slowed.”
The new normal of shortages and late deliveries
You likely thought that being in business was hard enough when supplies of goods were dependable and free-flowing. You managed people and operations, and may have wondered with goods readily available, “Should I take advantage of vendor programs that reward larger purchases with deeper discounts?” Or, “Is this year’s ‘next big thing’ worth my inventory investment?”
It’s often quite the opposite now, as these examples show:
On Aug. 25, An optometrist in Overland Park, Kansas wrote this message to his patients:
“As our patient and a contact lens wearer, we wanted to make you aware of some possible delays. There is a backlog of certain contact lenses due to materials, manufacturing, and shipping delays. Unfortunately, there’s no way to guarantee delivery dates at this time.”
“…we believe these delivery challenges and pricing pressures will be with us well into 2022…container space on ships is hard to find, and often doubling shipping times from 30 to 60 days…daily container processing has been reduced by as much as 80%, with product backing up at factories.”
A distributor of branded apparel and promotional items lamented that even t-shirts and black polo shirts are hard to find. He can’t reliably promise delivery of embroidered shirts for his client’s upcoming trade show or others worn by servers at a fast-expanding restaurant chain.
So, how did all of this happen?
The current state of shortages and supply chain bottlenecks is due to a chain reaction of events that actually began before the 2020-21 pandemic. In a nutshell, here’s what happened:
- Manufacturing of 20-foot and 40-foot containers was down in 2019 due to global economic uncertainties and slowing trade growth, paving the way for a future shortage when shipments rebounded.
- The pandemic’s early 2020 onset brought global shipping to a halt, with many ships removed from use.
- Consumers stuck at home with time on their hands spent stimulus money, particularly on durable goods.
- Short-staffed manufacturers and shippers have not kept up with demand. As many as 800,000 containers were stranded on more than 175 ships in February 2021, according to the Wall Street Journal.
- Large outbound ports in China closed when dock or ship workers were diagnosed with COVID-19.
- US ports did not have enough workers to unload the ships that could dock, creating a backlog of up to 40 ships in-waiting when one or two ships were customarily delayed. As of late August, according to Business Insider, a record-breaking 44 ships were waiting to unload at California ports, with wait times exceeding seven days.
- Shortages of US rail workers and truck drivers have slowed the delivery of off-loaded goods to regional distribution centres.
- All the while, empty containers remained scattered inland when ocean carriers instead chased more lucrative rates from shippers in China with outbound goods overflowing the docks.
Increased costs for shippers
The upshot is that deliveries are slow and costs are high.
Typical transocean shipping times have nearly doubled from up to 30 days to 60 or more, and the shipping cost for that tardy container has doubled from early 2021 and up nearly five-fold from a year ago. According to gift and seasonal item distributor Gerson — and similarly cited by Bloomberg — the $3,800 cost to ship a 40-foot container from China to the Midwest jumped to $7,800 in January and is now $22,000 or more.
Even worse, costs for many raw materials needed to produce the goods have also roughly doubled, and sometimes more. Chips that power our now-indispensable phones, gadgets and autos simply cannot be made fast enough.
To keep pace or even survive, many retailers will need to change their prices, practices or both. Suppliers may be unwilling or limited in their ability to absorb the cost increases themselves. The rest will flow to retailers and consumers.
Besides materials and finished goods, shippers UPS, FedEx and the US Postal Service have already announced holiday-time rate increases, in sync with peak demand shipping periods.
What a retailer can do now
Unfortunately, ignoring the complexities of today’s supply chain challenges and product shortages is not an option. However, there are ways retailers can be proactive and get ahead of what should be a most unusual holiday season:
- Accept that the goods you ordered months ago may arrive late or only in partial quantities.
- Encourage customers to do their holiday shopping sooner than later — even now — and explain why.
- Review purchase orders for any available return options due to late-arriving or unsold goods.
- If you offer “free freight,” consider adjusting any contingent order minimums.
- Determine if you can afford to order “hot” items based on a hunch, your gut or hype.
- Re-evaluate prices and margins in the face of higher inbound freight charges and total costs, including financing.
- Seek domestically made, alternative products that can be delivered on time.
- Place orders for future-season goods earlier than usual to improve the likelihood of timely delivery.
- Educate customers through conversations, social media, blogs, signs, or inserts about retail’s current challenges.
Though widely hoped for, improvements in product deliveries and costs are not on the immediate horizon and the timing of a “return to normal” remains uncertain.
Accordingly, retailers are encouraged to look beyond the holiday season, adjust their business practices and gently remind customers that they, too, are shoppers facing the same obstacles this holiday season.