Supply Chain Disruption and Peak Season Shipping

This peak season is set to be characterized by supply chain disruption. In this QAD Precision Report we look at how parcel shippers can mitigate delays and high costs.

The global supply chain is facing more pressure than ever before. Over the past year and a half, Covid-19 has caused shipping problems throughout the world. Today, supply constraints and port congestion continue to affect shippers globally. This turmoil is resulting in consumer product shortages, delays and increasing shipping costs for companies and is particularly alarming as peak season begins. 

Shipping costs are continuing to climb for global shippers. According to data provider Freightos, shipping costs have surged to approximately $15,800 to transfer a 40-foot container from China to the US west coast. This is a tenfold increase on levels before the pandemic.

An analysis of shipping, port and manufacturing data at IHS Markit reveals the delays will extend into 2022. Furthermore, some shipping executives have a more pessimistic outlook and expect the disruption to continue into 2023. 

Due to the disruptions, larger manufacturers and retailers are considering strengthening their supply chains by holding more stock, double sourcing or even reshoring production. However, this is costly. 

Disruptions in Apparel and Footwear

In Vietnam, one of the busiest manufacturing centers for apparel and footwear in the world, factories have been forced to cease operations in recent weeks due to Covid-19 related restrictions. Over 30 percent of the nation’s garment and textile factories were closed, according to the Vietnam Textile and Apparel Association. This is alarming for retailers and shippers around the globe. In the US, approximately 40 percent of the volume of goods imported by sea over the past 12 months to July came from Vietnam, according to data from S&P Global Panjiva.

Moreover, two large footwear suppliers — Taiwan’s Pou Chen, which manufactures shoes for Adidas and Nike, and South Korea’s Changshin, which also supplies Nike — suspended operations last month.  

Adidas CEO Kasper Rorsted said the sportswear company will not be able to fully meet demand for its products in the second half of this year  — citing factory shutdowns as the issue, despite switching production to other regions. 

Similarly, shoemaker Steve Madden says they're already missing out on sales because they do not have enough stock. 

As a result of these shutdowns, brands are scrambling to outsource manufacturing elsewhere to avoid delays as peak season begins. Women’s retailer Chico’s revealed that it has moved 90 percent of its overall production out of Vietnam into alternative countries. Likewise, golf-club maker Calloway has shifted some production capacity to suppliers outside Vietnam to mitigate supply chain disruption in the third quarter. 

In the UK, the chief executive of the British Retail Consortium Helen Dickinson has warned that consumers may see reduced choice and surging prices for products and presents as peak season approaches. Additionally, toy retailer The Entertainer said prices could rise by 10 percent over 18 months due to supply chain disruption, labour shortages and higher transport costs. 

Peak Season Surcharges 

In addition to increasing inbound, ocean shipping costs, many outbound shippers will be subject to peak season shipping surcharges. FedEx and UPS have outlined peak season shipping surcharges for shippers, with high volume shippers and shippers with large packages the most affected. The spike in volumes shows no signs of subsiding. Post-peak season, from January 17th 2022, FedEx will add a $0.60 per-package surcharges for Express and Ground home deliveries in the US. At present, there is no end date listed.

These new delivery surcharges will add pressure to shippers and retailers as they determine whether to absorb the price rises or transfer them on to consumers by increasing product costs. 

Optimising Last-Mile Delivery 

It is crucial for shippers to optimize last-mile delivery to minimise customer delays. This peak season, there are expected to be 5 million more parcels seeking delivery each day than providers able to handle that demand, according to UPS Chief Executive Officer Carol Tomé. 

The latest PMI survey from IHS Markit’s of global manufacturing revealed that the delays in delivery times are the most severe on record, causing prices to surge at one of the quickest rates in a decade.

Walmart recently announced that it is launching a new delivery service for merchants throughout the United States as shippers hurry to secure deliveries ahead of peak season. 

To avoid delays and meet customer expectations, enterprises should harness a multi carrier shipping software solution that includes global, national and regional carriers. With multi carrier shipping, companies can compare carriers to secure the best rates, transit times and arrival dates while leveraging small and regional carriers. During peak season, organisations can diminish the risk of delays by rerouting packages to carriers that are the least affected by the holiday rush.

Although shippers may not be able to control macro economic forces, they can ensure their parcel shipping operations are flexible and robust enough to weather the storms of supply chain disruption. With multi carrier shipping software, companies can reduce delays and improve customer satisfaction. 

Further Reading

THE BENEFITS OF INTEGRATING COMPLIANCE AND MULTI CARRIER SHIPPING SOLUTIONS

3 MINUTE EXPLAINER: WHAT IS MULTI CARRIER SHIPPING SOFTWARE

5 BENEFITS OF MULTI CARRIER SHIPPING SOFTWARE