In any other year, expectations of strong sales for the upcoming holiday shopping season would be the fulfillment of a dream for retailers. Instead, it’s shaping up to be something of a nightmare.
Consumers are clearly eager to spend. The question is: Will there be product on the shelves for them to buy?
The dilemma can, of course, be traced to the impact of COVID-19 on production and distribution. In the early days of the pandemic, that meant shuttered factories, mostly in China, and the temporary drying up of supply lines. Now, on top of the possibility of another wave of plant closures due to the Delta variant, there’s the longer-term problem of getting goods to market.
Congestion is rampant throughout U.S. logistics networks today, especially at Southern California ports, which handle the lion’s share of consumer goods imports from Asia. Dozens of containerships are lying offshore at major ports along the entire West Coast, waiting for berths at which to unload their cargo. But the traffic jam extends well inland, to railyards as far away as Chicago, where importers await delivery of their goods and exporters are unable to obtain containers and chassis for outbound moves. Add to that a chronic shortage of truck drivers nationwide, and you have a recipe for disaster.
Blockages throughout the system have been in evidence for months now, so retailers and distributors haven’t exactly been taken by surprise by the current chaos. Many brought their holiday merchandise into the country early this year for that very reason. “The question is, did they bring in enough?” says John Haber, founder and chief executive officer of Spend Management Experts. “And if they didn’t, can they replenish goods fast enough and make a margin on it?”
Desperate to avoid stockouts at the store and online, some retailers will be resorting to air freight. But the extra cost of that mode will cut deeply into their profits. (So, for that matter, will the soaring cost of moving containers by ocean, given the recent slew of rate increases enacted by carriers in response to high demand for ship space.)
Extra costs are being imposed at multiple points along the way. Logistics services provider C.H. Robinson recently announced a $175 per container drayage surcharge for all inbound and outbound cargoes at major U.S. ports. Others are likely to follow. But shippers are finding themselves paying more for less, with on-time ship arrivals having plummeted over the past year from 80% to 40%, according to Haber. Along with the general unavailability of ocean containers at inland points, the imposition by carriers of punishing detention and demurrage charges at the ports is an especially sore point with shippers, prompting an investigation into such practices by the Federal Maritime Commission.
The tale of woe extends to the major parcel carriers, who are currently experiencing overflow volumes in the range of 4.5 million to 7 million packages. “They don’t have the capacity,” Haber says. “Nobody does.”
The situation has prompted both UPS and FedEx to raise rates and even turn down business that doesn’t result in sufficiently high margins, he says. (UPS has even taken the drastic step of capping volumes tendered by some of its biggest retail customers during the holiday shopping season.) That makes it difficult for e-tailers to offer free shipping, a big selling point for online merchants trying to compete with the Amazon.com behemoth.
The pain being felt by retailers is anything but short-lived this year. In many cases, the definition of the annual holiday “peak season” has broadened to include Halloween, and even back-to-school sales. The end of summer now signals the beginning of a surge in buying that extends all the way to the New Year. (And beyond, if you include the big post-Christmas sales.)
That trend engenders yet another set of extra costs. “Peak-season surcharges never end,” says Haber. “That’s been going on since COVID hit. The line between what’s ‘peak’ and what isn’t is blurring.”
Don’t expect things to get better anytime soon. In the months to come, freight will continue to move in slow motion, popular products will be hard to find, and retailers will go on suffering from what they thought was their most fervent wish: a sustained surge in consumer demand.
Consumers that have become accustomed to getting their orders filled within a day or two, especially for merchandise purchased online, will be forced to temper their expectations. “Shop early,” says Haber. “That’s my best advice.”
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