COVID-19 surge, port delays threaten retailers’ holiday plans – Part 1

Meanwhile, the COVID-19 pandemic shows no signs of slowing down.

As the coronavirus pandemic complicates the economy’s recovery and ports struggle with an influx of imports, retailers are preparing for the forthcoming holiday season, which could be more complex than last year. In anticipation of the 2021 holiday season, retailers are bracing for increased shipping costs and consumers’ evolving shopping habits, experts told Retail Dive. Sources said retailers are relying on automation tools and omnichannel services to meet consumer demand during the industry’s busiest time of year.

Transportation troubles for deliveries and returns
Retailers continue to experience supply chain woes that began last year, such as delayed Chinese imports, the Suez Canal backlog, and a labor shortage amid the surge in COVID-19 cases. And on the demand side, e-commerce is expected to rise, all of which could further strain the supply chain leading into the holiday season.

Typically, retailers begin preparing for an increase in holiday season demand in Q3, but ports have been struggling to keep up with the influx of imports, stemming from a backlog in Q1 and Q2.

Ports are likely operating at full capacity now and could be limited even further depending on what this delta variant does and what the latest surge does.

In response to supply chain woes, some retailers are ordering goods early to prevent in-demand items from going out of stock. Though a CFO of a retail brand recently noted that inventory levels are improving but still placed larger orders with its suppliers to prepare for the upcoming holiday season. An executive at a major retail chain in the USA also said they were working to bring in more inventory sooner than usual ahead of the holidays.

Meanwhile, retailers and consumers must contend with higher shipping costs. Surcharges have been implemented ahead of the peak shipping season such as in the month of October. New sorting technology has been introduced and lease more storage space in preparation for peak season.

Bonuses have to pay to drivers to fulfill orders for major retailers because fulfilling those orders was no longer profitable for them, said a multinational management consulting firm. Those higher shipping costs, in turn, made it more expensive to deliver goods directly to consumers’ homes.

But high worker bonuses and increased shipping costs overall won’t be sustainable in the long term and will soon be due for a market correction.

The State of Logistics report from Kearney and the Annual Council of Supply Chain Management Professionals noted that some retailers are considering shrinking their dedicated fleets because they want to divert some of their resources from transportation to distributed inventory. At this point, retailers’ size and shifting demands could determine whether they continue investing in dedicated fleets. For smaller retailers without their own delivery fleet, they may move away from relying on dedicated third-party fleets because it’s not guaranteed that they’ll have the product demand to pay for them.

To combat supply shortages, some major retailers have chartered ships to bring in the inventory they need because the company wanted to meet increased consumer demand during peak season and did not want to be hindered by a lack of capacity in the ocean shipping market.

The coronavirus pandemic also further complicated retailer’s last-mile struggles. As parcel delivery face a “capacity crunch” and begin turning down volumes of packaging, retailers may turn to gig economy companies.

A lot of retailers are actually activating these partnerships already, just in case they have to use them in Q4. And we may end up seeing that not because the customer said, ‘but because retailers actually did not have the regular parcel providers, and now they’re gonna send it from the store with the last mile with the gig economy provider.”

However, such partnerships aren’t perfect. While traditional carriers have had years to perfect their delivery processes, gig companies’ delivery networks are set up completely differently. Though gig economy companies’ software and routing systems can execute deliveries, legacy parcel delivery companies have a national reach and have honed in ways to deliver goods efficiently.

But it’s not just last-mile fulfillment that is causing concern for retailers ahead of the upcoming holiday season; both retailers and carriers alike want to streamline the returns process.

to be continued… …