Top 3 Constraints Shippers Face Heading into Peak Season

The impacts of last year’s supply chain disruptions are no secret. In Q2 2020, eCommerce sales grew the same amount in 10 weeks as it had in 10 years, with consumers spending $1 in every $5 online. Retailers and brands weren’t ready. The seismic shift to online shopping was a massive supply chain disruption. Meanwhile, consumer demands accelerated, and peak season was no exception.

In a post-holiday consumer survey, nearly half (47%) of consumers mentioned that on-time and accurate delivery is more important during the holidays than any other time of the year. But stockouts and delays became an unfortunate reality in Q4 2020.

• 56% of consumers reported stock-outs and/or shipping delays that prevented them from making desired purchases

• 56% reported gifts they purchased online arrived late

• 45% reported retailers didn’t provide enough information about delayed items

• 41% reported customer service was unavailable or unable to address their questions and concerns about their orders

Most consumers (73%) will give more business to retailers that met or exceeded their expectations in Q4 2020. But conversely, more than half of consumers (53%) will never place another order with certain retailers that mishandled their order fulfillment again. Despite inevitable hurdles, the pressure is on for retailers and brands to deliver.

Consider these three ongoing challenges that will impact the Q4 holiday season.

1. The labor shortage #

News coverage on the labor shortage is everywhere. And it’s hitting logistics industries hard.

First, there are labor shortages at the ports. Due to the resurgence of COVID-19, port operations off China’s southern coast are working at 70% capacity. In June 2021, more than 130 ships were anchored off Yantian, China’s major gateway port. Wait times for containers were two weeks. For context, the port typically handles 100 ships per day. In attempts to mitigate the slow-downs, shipping companies have rerouted other freight to alternative ports in China, creating further congestion and introducing extensions on delivery times. Without the labor required to accept ocean shipments in ideal locations, the delays at the ports only exacerbate other bottlenecks across the supply chain.

Specifically, the increase in online shopping strains the logistics labor market. In Q2 2021, more than a quarter (26%) of the open jobs in the U.S. were in logistics. eCommerce fulfillment alone requires roughly 3x the labor of traditional warehouse operations. But turnover rates for eCommerce fulfillment are ~4x that of other logistics industries.

The holiday peak only compounds the labor need. More than a third (36%) of retailers plan to hire more employees for their fulfillment centers this holiday season, but 25% of retailers say they’re already having trouble finding those workers. To attract and retain the talent required to handle peak-season volumes, 16% of retailers and brands are considering incentives for seasonal workers. However, the labor shortage is just the tip of the iceberg.

2. Parcel carrier constraints and surcharges #

Like other aspects of the logistics industry, parcel carriers face labor shortages. It’s estimated that peak-season delivery demand will exceed parcel capacity by 5 million pieces per day. Already, FedEx and UPS dropped major surcharges and restrictions on their customers. And more are expected to hit at the beginning of Q4.

Additional handling surcharges are particularly devastating to shippers. For example, UPS will impose a $6 per package handling surcharge by October—a 100% increase to its current $3 per package surcharge. But because FedEx and UPS handle more than 90% of U.S. parcel volume, shippers’ margins are at their mercy.

3. (Extremely) limited warehouse capacity #

Retailers and brands have a space issue. And the increase in eCommerce is making it worse. eCommerce fulfillment operations in a warehouse require 3x the square footage needed for bulk-pallet storage and retail replenishment. Every additional $1 billion of eCommerce sales requires 1 million square feet of new warehouse and distribution space. So by the end of 2021 alone, shippers must find an additional 14 million square feet of capacity to keep up with demand.

Here’s the catch. It’s barely available. By the end of Q2 2021, U.S. average vacancy rates fell below 5% to 4.8%—a record low. The decrease in availability increased rates by 5.1% YoY to $6.62 per square foot.

As eCommerce continues to grow, U.S.manufacturers, retailers, and brands need 330 million additional square feet of warehousing space within the next four years.

Looking ahead: Forecasts vs. flexibility #

Supply chain leaders knew to brace for disruption last year, but many thought the market would normalize by year-end. That’s not the case. Instead, there will be a sustained increase in eCommerce and greater consumer expectations.

The new normal is that there is no longer a normal. Disruptions won’t stop, and accurate forecasting will get more difficult. Supply chain leaders must brace for impact for their peak seasons, and staying resilient will only become more important.

Learn more at www.flexe.com/preparing-for-peak-2021.

You may also be interested in: #

• Infographic: Predicting the Unpredictable: Key Considerations for the 2021 Peak Season

• Article: Retailers vs. Consumers: Colliding Points of View on eCommerce Delivery

• White Paper: The Guide to Fixed and Flexible Logistics