One year after the most volatile and disruptive peak season in recent history, the freight industry is preparing for yet another peak. Supply chain managers are making plans with uncertainty, key lessons and new risks baked in. And while some risks and constraints — like vaccine distribution and economic uncertainty — no longer threaten supply chains, many others remain, including unstable and unreliable ocean freight markets and a resurgence of COVID-19 via the Delta variant. Following are three predictions concerning freight markets and overall supply chain performance for the 2021 peak season.
Consumer demand will remain strong. As labor markets improve, wages rise, and post-recession household savings rates surge to record highs, consumers will be spending. How they spend their money will change in line with these conditions. During the pandemic, we saw spending on household goods soar, and bulk buying increase dramatically for paper products. (Who can forget the toilet paper shortage of 2020?) As we’ve seen over the past few months, the hospitality industry is rebounding, which is driving more spending outside the home for dining and entertainment. For supply chain leaders, this means a shift in some cases from consumer packaged goods to food service. Strong economic demand also presents challenges, because increased consumption could actually perpetuate unattainable levels of service performance and amplify supply chain disruptions.
COVID-19 variants will continue to cause uncertainty and volatility. Once again, the resurgence in COVID-19 infection rates threatens the pace at which the economy recovers, which will continue to make planning difficult. The Delta variant is causing alarm, and infection rates are increasing, which along with the arrival of wintry weather could slow the pace of economic reopening overall. Seasonal demand forecasting, production and inventory planning won’t be any easier for the rest of the year, despite relative strength in the underlying economy. Additionally, global ocean trade lanes will remain overloaded, which will make transit times unpredictable. Shortages of key components and labor will also present issues. The good news is this is no longer entirely unknown territory, and lessons from last year can inform supply chain leaders’ decisions this time around. We know that agility and resilience are key.
New capacity will enter the U.S. trucking market. The U.S. trucking market won't be nearly as stressed as it was last year because additional capacity continues to enter the landscape. Record spot and contracted market rates are luring in trucking capacity, which will continue to grow as the peak season approaches.
Retail shipping won't have to compete with the U.S. government or healthcare industry for scarce transportation resources, as it did last year in support of Operation Warp Speed. This increased flexibility should allow shippers to operate much more nimbly than before as they navigate the uncertainty. It will pay to focus less on forecast accuracy and more on overall supply chain agility. In the wake of last year, supply chain leaders will benefit from increased ability to shift toward opportunities and away from dangers as they arise, but only if they’ve prepared their organizations to operate this way.
Ultimately, a strong peak retail season driven by an increasingly healthy U.S. consumer, both physically and financially, should keep a lot of cash registers ringing through the holidays. Agility and nimbleness will be mission-critical capabilities for those shippers in the best position to prosper. Leaders should look to source key components and locate inventory strategically to create optionality, as bottlenecks inevitably develop due to Delta variant uncertainties or sourcing challenges. Secondly, I suggest getting creative with transportation planning to reduce transit times and accelerate supply chain velocity. Explore collaboration opportunities and look to technology to amp up network productivity. The good news is that the shippers left standing — not to mention the ones that are thriving — have likely already invested in these capabilities to prepare for the unknown, as a result of the year we’ve just navigated.
In the face of the what-ifs and challenging scenarios these three predictions pose, supply chain managers should buckle up for another challenging peak season and take the best of lessons learned to manage uncertainty. This time, you should be much better prepared.
Chris Pickett is chief strategy officer at Flock Freight.
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