How can shippers build agile logistics networks to navigate a complex peak season? Here are participants’ questions answered.
Key Takeaways
- 51% of logistics professionals expect this peak season to be worse than 2021
- 10% more YoY import volume arriving in locations like New York/New Jersey. Charleston and Houston saw 20% increases
- Consumers pivot to cheaper alternatives in some categories and spend more on services than goods
- Brands hold record high inventories as consumers shift spending. With industrial vacancy rates at record lows, economic outlooks uncertain and consumer expectations high, retailers may need to augment existing networks and partnerships to navigate
Peak season keeps shippers and supply chain professionals up at night for a reason. It’s complicated planning for—and navigating through—the busiest shopping season. With supply chains constrained and consumer demand uncertain, this year’s peak will likely prove to be chaotic. Fifty-one percent of logistics professionals expect this peak season to be worse than 2021.
Flexe hosted a webinar in August dedicated to this critical topic: how can shippers build agile logistics networks to navigate a complex peak season?
The panelists:
Jordan Lawrence - Director of Logistics Strategy, Flexe
Vidya Narayanan - Director of Product Marketing, Flexe
Nathan Strang - Director of Ocean Trade Line Management, Flexport
Here are the questions—and insights—uncovered during the webinar.
What’s causing current port congestion? #
Companies rerouted freight to East Coast ports due to continued bottlenecks at West Coast ports.
June import volumes hit record numbers, and locations like New York/New Jersey received 10% more YoY volume. Charleston and Houston saw 20% increases.
Instead of easing maritime congestion, rerouting caused it to spread to both coasts. Port congestion pressures drayage and rail transportation.
Congestion creates unpredictable lead times heading into peak. And companies continue to plan amid uncertainty.
Port congestion and other delays hinder shippers. Will smaller ports relieve the pain? #
Some shippers use smaller, distributed ports to relieve congestion. They pay a higher price. Small ports are more expensive and don’t have large existing labor pools, warehousing or transportation networks.
For example, some retailers chartered ships into San Diego versus Los Angeles last year—and paid for it. Port congestion was lower, but San Diego had limited drayage and labor, which nullified the benefit of the charter.
Long-term, shippers can choose to incur costs strategically to develop smaller ports. For example, the East Coast has many inland ports like Greer, Savannah and Atlanta. Shippers operate in these ports with greater risks, and they will need to align other nodes and modes in their supply chains to balance those risks.
How will changes in consumer demand affect supply chains? #
COVID-19 fundamentally changed buying patterns overnight. eCommerce grew the same amount in 10 weeks as it did in the last 10 years.
Spending skyrocketed and led to stockouts. Just-in-time supply chains fractured as demand far outpaced constrained supply.
Fast forward: Consumer spending patterns shifted. Consumers pivot to cheaper alternatives in some categories and spend more on services than goods. Americans spent nearly $44 billion less on goods in May but $76 billion more on services.
Items popular in the early pandemic period fell out of favor. Consumers no longer shop for exercise equipment, furniture or home improvement items at pandemic rates.
Yet brands now hold record high inventories as consumers shift spending, which means warehouse capacity is still extremely low.
Ocean capacity may slowly increase as demand slows. Will warehouse capacity increase in the near future? #
Ocean carriers signal softening demand ahead of this year’s peak season. And carriers may moderate capacity to control rates if peak season shipping slows.
What about warehouse capacity?
Warehouse capacity expands at a slower rate than ocean capacity. Long-term construction takes years, and vacancy rates are still very low. Capacity shortages drove up average asking rates to $9.40 per square foot—a new record. Capacity challenges strike port adjacent markets. The Inland Empire is one of the U.S.’s tightest, running at a record 0.6% vacancy rate compared to the 2.9% average.
Relief from low industrial capacity and high rates will likely not appear until the end of 2022 or early next year.
How can retailers offload excess inventory or lower the cost to carry inventory?
#
In 2021 and early 2022, retailers built inventory levels to circumvent long-standing supply chain challenges and match record consumer spending. Some saw their inventory levels balloon as much as 43%.
Many retailers will reevaluate existing inventory and:
Liquidate existing inventory to create capacity. Retailers can offer deep discounts and liquidate existing, depreciating inventory to create capacity, reduce holding costs and recapture remaining value.
Cancel outstanding orders and phase out products to reduce unnecessary imports. Retailers can then reallocate space for new inbound orders. Some industries currently forecast purchase order reductions of 20-30%. Others haven’t interrupted orders.
Seek flexible capacity and additional partnerships to manage inventory levels through peak. Brands can store inventory in secondary and tertiary markets to lower the carrying cost burden of slow-moving SKUs. Enterprises can also identify additional logistics service providers (LSPs) and parcel carriers to augment capacity.
How do retailers use Flexe to mitigate delivery challenges and meet customer expectations? #
Peak creates distinct pain points for retailers this year. With industrial vacancy rates at record lows, economic outlooks uncertain and consumer expectations high, retailers may need to augment existing networks and partnerships to navigate. One solution: Flexe Logistics Programs.
Distribution #
Brands are wary of stockouts for a reason. Supply chain upheavals generated stockouts throughout the past two years. Out-of-stock messages increased 172% in 2021 versus 2020 and an astonishing 360% versus 2019.
And retailers lose short-term sales and long-term customers to stockouts. Seventy percent of consumers planned to switch retailers or brands to avoid stockouts.
Many retailers leverage Flexe Distribution Programs to position inventory close to stores for rapid replenishment to avoid stockouts.
Capacity #
Shippers can augment existing network capacity with Flexe Capacity Programs. These programs tap into the nation’s largest connected warehouse network—even with capacity at record lows. In the wake of economic uncertainty, many shippers remain focused on preserving working capital, managing risks and avoiding long-term agreements.
For example, many companies considered nearshoring manufacturing over the past two years. While nearshoring manufacturing can be exceedingly difficult, shippers can nearshore capacity with the Flexe Logistics Network, often at lower costs. Additional capacity allows companies to shift excess inventory, build inventory levels for peak and reduce network pain points leading into peak.
Fulfillment #
Consumers expect retailers and brands to deliver online orders fast. Forty-four percent of consumers define “fast” as next-day in 2022, compared to only 14% in 2020. Eighty-three percent say they will search elsewhere for faster shipping options.
Speed is costly: 45% of brands don’t offer fast shipping options because it makes total costs too high. And success depends on having inventory in the right place at the right time.
Flexe Fulfillment Programs dynamically position inventory closer to consumers to accelerate delivery promises and reduce costly last-mile transportation.
Many shippers also leverage their store networks to fulfill direct-to-consumer orders and provide BOPIS solutions. The obstacle: smaller backroom footprints curtail large backstock. Retailers can leverage fulfillment programs to support store networks and extend fulfillment fast and flexibly. Retailers can now access secondary and tertiary markets dynamically to support existing fulfillment, without upfront costs and long leases.
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