Q4 2021 Market Watch: Holiday Peak Season Part 1

October 28, 2021

Global port delays: The Grinch that stole the holidays

Flexe shipping container web resources 3000x1690

The holiday shopping season is here, and consumer demands are at an all-time high. However, supply chain volatility threatens holiday success for retailers and consumers alike.

Key Takeaways

  • Consumers will spend 25% more this holiday season
  • 20-25% of products on the water won’t make it to store shelves in time for Black Friday
  • 50% of consumers will begin holiday shopping before Thanksgiving

From forecasting issues and late inventory to unprecedentedly low resources, retailers and brands are scrambling to find creative solutions to avoid stock-outs and maintain customer loyalty during their most lucrative season. But with supply chain delays and disruptions making international headlines, more consumers are shopping earlier than ever before.

Consumer spending is back to pre-pandemic levels #

Consumer demand is high. Retailers and brands recognize they must capitalize on demand to maximize annual profits.

  • Shoppers will spend an average of $870 on holiday-related purchases, a 25% increase from 2020 ($694) and comparable to the 2019 average of $874.

  • November and December holiday sales will rise between 8.5% and 10.5% YoY, reaching up to $859 billion in sales. Last year, sales rose 8.2% from 2019 to $777.3 billion. Before the pandemic, a 4.4% YoY increase in holiday spending was standard.

Some retailers generate 1/3 of their annual profit between Black Friday and Christmas.
Strategic Resource Group, 2021

But, goods are stuck on ships #

Though consumer demand is high, “Containergeddon” may prevent holiday shoppers from getting the goods they want in time. Ongoing supply chain volatility threatens retailers’ ability to meet forecasts—making inventory availability dates uncertain for the foreseeable future. And many port leaders believe that congestion will continue through the summer of 2022.

  • It now takes roughly 80 days to transport goods across the Pacific, twice as long as before the pandemic.

  • Freight costs increased by more than 100%, and carriers demand payment upfront when terms used to be 60 days.

  • As much as 20-25% of the goods stuck on ships are unlikely to make it onto shelves in time for Black Friday.

The supply chain is in the spotlight #

The supply chain is under a microscope. The volume of news coverage on port congestion, labor shortages, potential stock-outs, and other disruptions decreases consumer optimism. In attempts to beat delays and ensure presents make it under the tree, consumers are shopping early.

  • The White House hosted a supply chain roundtable on October 13 to discuss the ongoing supply chain crises. The group included leadership from the Port of L.A., Teamsters, Walmart, Target, FedEx, UPS, NRF.

  • In just five days (October 10-14), The New York Times wrote three separate pieces about the supply chain.

  • Almost half (45%) of people admit they never thought about how they received products before the COVID-19 pandemic, but now nearly everybody (91%) considers the supply chain when making a purchase.

  • More than 50% of consumers will begin their holiday shopping before Thanksgiving (an uptick from 43.2% in 2020).

More than 50% of consumers will begin their holiday shopping before Thanksgiving.
Wall Street Journal, 2021

Shippers get creative to combat disruption #

Over-ordering inventory, extending working hours, implementing labor incentives, and even chartering their own ships are just a few of the strategies retailers and brands are using in attempts to mitigate disruptions.

Walmart, Home Depot, Costco, Ikea, Dollar Tree, and Target are among the companies paying for their own chartered ships, a costly and unattainable option for most companies. Chartered ships cost nearly twice as much as shipping via major cargo liners. Plus, chartered ships tend to be small and move just a small slice of total imports.

  • Home Depot dodged the Los Angeles gridlock by sending its Great Profit charter ship nearly 125 miles south to the Port of San Diego.

  • Walmart chartered smaller ships to have the capacity to dock and unload at smaller ports where congestion is lower ahead of the holiday season. The retail giant even sent its employees to the congested ports to help facilitate landings.

  • Costco chartered three ships—each capable of carrying approximately 1,000 containers—to bring goods between Asia and North America. Each vessel will make up to 10 deliveries for Costco over the next year. Those ships account for less than 20% of the warehouse retailer’s import volume from Asia next year.

Looking ahead #

In early October, the White House asked for the following measures to address the strains on the supply chain:

  • 24/7 operations at the ports—despite the ongoing national labor shortage

  • Advancements in information sharing systems

  • The creation of a single, consistent, and predictive appointment system that is interoperable among port terminals

Can these strategies effectively mitigate port congestion? What will the shelves look like on Black Friday? And what will consumer sentiment look like at the end of the month? Only time will tell.

Stay tuned for the next Flexe Market Watch for an update on how these disruptions evolve.