Following the holiday season, it’s typical for shipping activity to settle from its end-of-year high. This is when companies can take time to assess the past year’s performance, and make plans for the next 12 to 18 months. This year, the focus is on determining what broke down across supply chains during 2020, and figuring out what changes need to be made to drive success in 2021.
To make things more complicated, as with many things in the past year, the economy isn’t following its usual pattern. End-of-year fluctuations continued into 2021, and shippers continue to operate at peak-season volume, all the while faced with putting together plans to better handle the next peak season. E-commerce tailwinds have created backlogs that are contributing to a continued constraint on trucking capacity and heightened transportation costs. At the same time, major U.S. ports remain congested, forcing shippers to find alternative routes to get their goods into the country.
Under these circumstances, typical shipping patterns must be reevaluated and viewed through a new lens. Shippers across industries, particularly in retail, must consider what this market means for their transportation and logistics operations and direct-to-consumer capabilities. The key is achieving flexibility across supply chains, as shippers reposition assets to meet the demand of a new paradigm of consumer buying behavior.
With that in mind, there are several key trends to keep in mind this year:
New approaches to network design. There’s been a lot of discussion around how the pandemic could and should impact where companies source materials and set up their distribution centers. After years of pursuing lean supply chains and just-in-time inventory, shippers are valuing a network structure that allows flexible and resilient options. This means bringing inbound logistics closer to home, and setting up distribution centers closer to population centers.
Retail shippers, particularly in consumer packaged goods, understand the importance of getting their goods as close as possible to customers. With product stockouts a common theme in the first half of 2020, CPG companies saw that customer brand loyalty doesn’t stretch very far. At the end of the day, if their preferred brand isn’t on the shelf due to shortages, consumers will switch to the next (and usually cheaper) alternative, and might never go back to their prior brand, even when it becomes available.
Away from the store, direct-to-home deliveries for just about every product category are growing, and delivery windows are becoming tighter, as consumer expectations continue to be set by e-commerce retailers offering two-day or even faster delivery, with expectations of same-day delivery on the rise. There’s a premium on warehouse and fulfillment center proximity to end consumers, to further achieve this expected level of delivery availability and same-day speed.
As a result, companies are taking a closer look at their distribution center locations, and situating their manufacturing facilities to close these delivery gaps. Consumer demand continues to call for more flexible e-commerce options, while at the same time stockouts at stores have fluctuated with the continued rise and fall of COVID-19 cases. As a result, companies will continue to consider locally based solutions so as to compete with one- and two-day shipping turnarounds.
Shorter contracts for uncertain times. Sticking with the theme of flexibility and business resilience, more shippers are looking at shorter-term transportation contracts and “mini-bids” as a hedge against continued market volatility. This trend may last longer with the fluid state of consumer buying habits, and questions about how buying patterns will settle with the continued mass vaccination of the general public against COVID-19.
Along these lines, seasonality is also on hiatus for many product categories. So far this year, volume has remained high for many products, as people continue to spend more time at home. Purchases of exercise equipment, ingredients for baking, craft and hobby supplies, and materials for home improvement projects remain strong.
The volatility has elevated the cost of transportation across the board, motivating companies to push off longer-term contracts until markets show that they have steadied. When things do normalize, perhaps months or even years from now, the cyclicality we’re used to likely won’t apply. We’ll be operating under different conditions, with both shippers and carriers reallocating their assets to match the new demands of the day.
Final-mile and white-glove solutions. It takes a lot to change consumer behavior. Now that consumers have experienced the convenience of having almost any imaginable product shipped directly to their homes, shippers can expect continued e-commerce growth, even as lockdown measures are lifted. Bigger and bulkier items are perhaps the most convenient e-commerce purchases for consumers, and the hardest for shippers to manage through their network. Items such as exercise equipment or furniture pieces that would typically ship to a store now must arrive directly at consumers’ homes, requiring a heightened level of delivery service.
The delivery process is now the most essential touchpoint that most brands have with consumers, and in many cases it’s carried out by someone not directly associated with the company. The pressure on improving the customer delivery experience will be a high priority in the next year. Businesses will look to identify their most trusted transportation partners who can manage a more “white-glove” consumer experience.
Economic recovery. Over half of 2020 could be dubbed “peak season,” as we saw the entire U.S. supply chain operate at an unprecedented pace to keep up with a very different buying landscape. With positive signs of a broad economic recovery over the next 12 to 18 months, the consumer buying trends we saw in the last 12 months show no sign of slowing down, with the potential to become the next “normal.” While many companies pivoted quickly to the new model, such as investing in distribution closer to the end-user or shifting stores to fulfillment centers, many are now preparing for a more permanent change. What was considered a temporary solution has become a long-term expectation, as consumers adjust to the convenience of new models and continue purchasing products at high volumes.
Following everything that occurred in 2020, the familiar business cycles of the past are now on hold, and perhaps forever altered. As 2021 continues, we’re seeing a paradigm shift in the way consumers purchase goods and interact with brands, and an evolution in the way that shippers, carriers and 3PLs work together to meet the challenges of this new marketplace.
JJ Lewis is vice president of enterprise sales at GlobalTranz.
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