Photo: @h4rfy via Twenty20
Are current supply chain bottlenecks a bigger deal than normal?
In an example of delayed fallout from the pandemic, the nation’s ports in recent months have been struggling with congestion and container shortages. The circumstances could lead to long delivery waits and higher consumer prices in the months ahead.
American imports from China have been surging since June and ports have been striving to play catch-up after initial pandemic-driven lockdowns. Imports have remained elevated as stay-at-home consumers have been snapping up Chinese-made furniture and appliances, toys, exercise equipment, bicycles and other items. The uptick is being traced in part to money being diverted from vacations, movies and dining out towards goods to use around homes.
Many factories in Asia that normally close for Chinese New Year this month are remaining open to keep up with demand.
Unfortunately, the import surge has led to congested marine terminals, equipment shortages and longer-than-usual truck-turn times. A shortage of dock workers amid coronavirus outbreak threats is further complicating port operations.
In a February 8th statement, NRF predicted the nation’s largest container ports would continue to set new monthly records for imports into the summer, citing as evidence 25 to 30 ships waiting to dock at the ports of Los Angeles and Long Beach.
Port backups in Southern California as well as East Coast and European ports are leading to a scarcity of empty containers, escalating freight prices. According to the Wall Street Journal, container rates from Asia to the U.S. West Coast are almost four times higher than in March 2020. Container rates to the East Coast have more than doubled.
Alternative delivery options are limited. For instance, air freight often travels in the belly of planes and passenger air travel remains restricted. Retailers may be able to leverage connections, tap data analytics and machine learning to forecast future demand, and book cargo space in advance.
The disruption nonetheless is driving commodity prices up and may contribute to accelerating inflation, with energy prices also rising. The higher shipping and warehousing costs may have to be passed on to consumers until typical buying patterns return.
Lars Jensen, CEO at SeaIntelligence, a maritime consultancy, told the Washington Post, “There’s only one thing that can fix this and that’s time.”
- Retail imports expected to hit repeated monthly records after record year in 2020 – National Retail Federation
- Shipping Container Shortage Gives Commodity Prices Extra Boost – The Wall Street Journal
- Global supply chains choke under tsunami of freight – Freight Waves
- Retailers to face continued pandemic-induced supply chain pain well into 2021 – S&P Global
- An ‘aggressive’ fight over containers is causing shipping costs to rocket by 300% – CNBC
- Record port backups hit California as U.S. consumers supercharge purchases – Marketplace
- Pandemic aftershocks overwhelm global supply lines – The Washington Post
- Congestion Worsens at Southern California Ports – Transport Topics
Discussion Questions
DISCUSSION QUESTIONS: Do you see current supply chain bottlenecks as a bigger problem than in the past? What options do retailers have to address these challenges?
Poll
BrainTrust
Joel Goldstein
President, Mr. Checkout Distributors
Jeff Sward
Founding Partner, Merchandising Metrics
The current supply chain bottlenecks are a big deal! The combination of increased demand, less supply and reduced workers at loading docks due to coronavirus illnesses has created a huge backlog and extended delivery time for imported goods. And on top of this, we are currently having significant weather related issues that have caused delays in shipping delivery times. Understanding that many customers will become frustrated with longer delivery times, retailers should communicate the cause of the delay and may want to consider offering customers a discount if they are comfortable waiting longer to receive their merchandise. This would allow the first available products to go to the customers that are most impatient, which would help increase overall customer satisfaction.
We are in the middle of a pandemic without full mobility for the world population — so yeah, we are in different times and current supply chain bottlenecks are a bigger problem. Transparency through the entire supply chain and logistics innovations are critical. Retailers and suppliers have long talked about blockchain and other innovative solutions for the supply chain — now is the time.
I think that COVID-19 showed Americans that manufacturing within our continent is essential for security and keeping the lifestyle viable during troubled international times. The urge from Biden to Buy American is more than just a cry for jobs and businesses, it’s a security measure that will keep us self sufficient if we ever need to close the borders again.
Supply chain is where the physical limitations will be felt. There is no getting around six to eight weeks of in-transit time from the factory to the warehouse. Add the purchase order approvals, new design quality approvals, etc., and it adds up and can never be “just in time.” And there are other delays that smaller organizations have to contend with — waiting for the containers to fill up as their order quantities are not very high.
Most of these are structural issues of sourcing from a far-off place like China.
Even then, there are organizations that strategize better. Domestic manufacturing is a top-tier choice, but equally good are – delayed manufacturing with final assembly/labeling happening onsite in the U.S., nearshore manufacturing in Mexico, and collaborating with other organizations to make full truckload containers.
Addressing supply chain issues has become priority #1 for many retailers and, right or wrong, the bar has been set in terms of expectations for customers. The current pandemic is a bit of a perfect storm because as you stated, demand is higher for goods since people aren’t spending on travel, etc. In addition, while unemployment is still relatively high, many companies that offer positions to workers that are required to be “in-person” are having huge challenges finding people. Unfortunately, time is likely the only real solution to addressing this.
Factories in Asia staying open during Chinese New Year is a big deal, a really big deal. It’s frustrating to have real demand that the supply chain can’t handle. It may indeed be a legitimate ripple effect of the pandemic, but it is yet another example of how range bound several areas of the supply chain have been illustrated to be. So absolutely, supply chain bottlenecks are a bigger problem than they used to be. It may be too many wrong projections on too many customer choices. Retailers need to learn how to focus on how to still tell great stories but with a narrower range of customer choices. And that does not mean eliminating the fun or novelty or fashion choices. It means investing in most wanted items the deepest and being prepared to sell out of the more fringe items.
Yes, “factories in Asia staying open during Chinese New Year is a big deal, a really big deal.” REALLY BIG DEAL!
I believe the current supply chain bottlenecks are temporary. Because most of us don’t see what happened in foreign manufacturing plants and ports because of COVID-19, we may not realize that those too were severely impacted by this pandemic. Normality will return to the supply chain. Give it time.
I believe we will see a continuance of supply chain issues as we move through COVID-19 with an even higher acceleration through 2022. Why? Once worldwide vaccinations take hold and herd immunity is attained, we will see an explosion of retail therapy like never before.
Not only will we continue to see a huge spike in “everything home,” but finally a much-needed rush to apparel which has been struggling throughout the pandemic. Offices will reopen, people will be back out socializing and they will want new clothes other than their favorite pair of Lulus.
The global supply chain industry is among the most sophisticated in the world. The problems being experienced today are pandemic induced and largely because of a lack of resources handling the “last mile.” As the pandemic wanes, so will the problems.
While we are are discussing a retail problem, we must remember that about 70 percent of all imports are industrial products, everything from heavy machinery to components for American made products. That too weighs heavily on the U.S. economy and jobs.
For retailers, watch your inventories. If you are waiting for products that spike during the pandemic, by the time you get them consumers may be back to their more traditional buying habits.
Once world shipping lanes get out of kilter, it is very difficult to get them back in shape quickly. Containers in the wrong place, ships in the wrong place or being held up at ports — it is a big issue that takes time to sort out.
However we have spent a lot of time in recent months talking about retailers and consumers starting to respect and prefer buying local. This is just another driver towards that policy and while cheaper goods from China will always be the bulk of the volume, the upper end of the market using local manufacturing and quality materials will take a larger share than in the past. Retailers can look at their supply chains and split the volumes from far shores planned in advance and a known risk of timing, and topping up with local sources at higher prices but fulfilling demand.
Other than a drop in air freight, the bottleneck at U.S. ports does not reflect extreme conditions, just higher than normal. About 5 to 10 percent of air flights are freight only, but with the reduction in air travel almost all airlines have resorted to shipping cargo with their planes, even to the point of refitting planes. The current scenario is temporary and we’ll find ways to move goods out of ports quickly. Transportation hubs have been a lifeline for the economy and will continue to operate with automatic adjustments. For retailers, this may translate into carrying higher safety stock or earlier sourcing of product to ensure goods make it on time. It will place importance on the logistics and reduce reliance on certain shipping options.
The pandemic has shown us what a foolhardy position it is to take a restrictive Nationalistic stance compared to a more open global position on trade. The push to make things in America, rather than work within the capitalistic framework of our founding fathers and enjoy the fruits of global trade is the key here. Locke’s capitalism requires trade and more open borders to leverage our strengths, while filling in for our weaknesses.
The bottlenecks are episodic and have been for years, so it’s rather misleading to talk about “in the past” (as if it were some constant history). More to the point, they’re an issue now, and likely will be again in the future … both short term and long term.
Retailers have the same options as always: don’t import, import earlier and maintain larger inventories, or cross their fingers (and potentially run out). It’s a balancing act between the “just-in-time” ethos and minimizing out-of-stocks.
Supply chain bottlenecks caused by inclement weather, accidents and work stoppages for example, are to be expected in the normal course of importing goods. However, this time it’s different due to the pandemic and importers who do not have the necessary clout with the shipping lines/forwarders will find themselves without stock to sell. The way forward is to diversify the base of manufacturing from a single country to multiple countries in different parts of the world, sourcing locally and ordering early to ensure stock arrives on time. Unfortunately, this solution is not simple but will be critical to ensuring business continuity in the face of future disruptions to the supply chain.
With everything out of kilter at the same time — weather, covid, supply chain disruptions — I’m sure the throughput is lower than at any other time. And in the absence of any facts or information to support my view, I have this suspicion that our underinvestment in infrastructure is also coming home to roost, with less flex capacity as an outcome of poor investment choices.