Business being good isn’t always a good thing. Shipping, inventory, and fulfillment are the basic underpinnings of a business that, at the end of the day, must work flawlessly for any sort of marketing efforts to be minisculely worth it – and they are all in flux right now.
Since the onset of the coronavirus pandemic in March 2020, retailers and brands around the world have increasingly been feeling strain on their supply chains. What started as factory shutdowns has snowballed into issues across the entire supply chain, from material and labor shortages to increased freight prices to extremely delayed shipping. Rising costs are making it even more difficult for businesses to get their products delivered to stores and customers alike.
We will keep this blog updated with all of the latest information that marketers and executives like you need to stay in the loop with the current state of the supply chain. Bookmark this article for easy access so you can stay informed!
Where Supply Chain Strain Stands for the Holidays
Last year, supply chain issues were top-of-mind for shoppers during the holiday season. Delivery speed and cost were tied as top concerns. 27% said these were the most important factors when shopping online.
Where can brands and retailers expect from the 2023 holiday shopping season?
This year, consumers are still worried about supply chain strain. But in light of the economic recession, shipping costs are their top concern.
32% of adults say delivery cost is the most important factor when shopping online. 22% say delivery speed is the most important.
Free shipping will be a valuable holiday ecommerce strategy, especially if you can’t provide deep discounts on your products.
Low-cost shipping isn’t the only important consideration – free returns are key, too. In fact, 78% of shoppers will abandon their shopping cart if free returns aren’t available.
But returns can be costly to businesses. 88% of retailers plan to make their return policies stricter for the holidays. The risk involved with returns could pose issues this holiday season, so make sure your brand is prepared.
To explore more insights about this year’s holiday shopping season and how your brand can thrive, read our blog on 2023 holiday ecommerce strategies.
The holiday season is easier to navigate with a trusted guide by your side. Let us shine a light on the holiday ecommerce strategies that could help your brand thrive. To discover untapped opportunities for year-over-year growth, send a message to our team today.
The supply chain & Prime Day 2023: What to expect
Amazon Prime Day is one of the busiest shopping days of the year. Last year, the shopping event delivered $12.1 billion in revenue for thousands of consumer brands.
As consumers cope with inflation hikes and search for discounts, this year’s Prime Day can be expected to bring even more sales. What does that mean for the supply chain, which has been facing strain since the onset of the pandemic in 2020? How can your brand mitigate some of the risk?
The good news is that the supply chain index dropped to an all-time low in April. The decline indicates that retailers are rediscovering the balance between supply and demand. This marks the third month in a row that the index has slowed.
If you plan to use Fulfillment by Amazon (FBA) during the event, the biggest thing you’ll want to note is that for retailers the deadline to apply for FBA inventory and inbound shipping is June 15, 2023.
Another tip is that when you’re deciding what to promote on Prime Day, prioritize products that you already have an overflow of inventory for. This can help you not only clear out your warehouse of excess items but also drive revenue without having to worry as much about running out of stock. It’s the best of both worlds.
You’ll also want to take a look at your historical data for an idea of what demand will look like this year. What products will shoppers expect you to discount? You can also look at general industry trend data. Some of the top-selling industries during last year’s Prime Day were consumer packaged goods, Amazon devices, consumer electronics, and household items. If you’re in any of these industries, you can expect to see an influx of interested shoppers on Prime Day.
Even if you’re not running any promotions, shoppers who are interested in your product are likely to visit your page to see if they’ll be able to score a deal. Make sure you’re prepared for those shoppers who decide they’ll buy your product while they’re already purchasing discounted items on Amazon.
Every digital marketer wants this year’s Prime Day to be better than the last, but not every digital marketer knows how to get there. In fact, there are lots of myths that many businesses follow when it comes to achieving success on Prime Day – to their own detriment. We’re here to reveal the true strategies that will deliver the wins you’re looking for. Register now for our Prepping for Prime Day 2023 webinar and take control of your brand’s Prime Day success.
Insights to mitigate risk from supply chain disruptions
According to ROI Revolution’s 2023 State of Digital Marketing Survey, nearly one in every three marketers says their brand is facing supply chain challenges this year. That comes as no surprise considering global supply chain disruptions more than tripled between 2019 and 2021 – and in 2021 alone, these disruptions cost businesses $184 million.
66% of businesses expect supply chain issues to worsen in 2023.
Disrupted supply chains can cause a 62% financial loss. On top of that, nearly 60% of companies say they’ve lost sales from having out-of-stock products.
Major marketplaces like Amazon have set high expectations for speedy delivery – expectations that many of those marketplaces can’t always keep up with given the current state of the supply chain. 60% of consumers expect same day, next day, or two-day delivery, and once customers are disappointed, winning them back isn’t easy.
With higher inflation and product costs, your business should try to avoid increasing shipping costs. Shoppers buy more and spend more on orders with free shipping.
What else can your brand do to mitigate the risk from these supply chain disruptions? The top way businesses are combating supply chain disruptions is by carrying more inventory. However, this strategy has also resulted in many businesses having too much inventory that they can’t sell. With inflation a top concern for consumers (maybe find a stat on this), battling the supply chain blues requires a delicate balance for supply and demand.
Diversifying where your business sources products and materials from is another way to avoid complications. Some businesses are also leveraging AI-enabled supply chains to improve logistics costs and inventory levels.
Keeping up with an ever-evolving marketplace and shifting consumer expectations is no easy feat. Right now is a critical time for your business to try to save money, grow your brand, and reduce risk. If you could use a helping hand to guide you down a profitable path, send a message to our team today.
What the recession & inflation mean for supply chains
Supply chain strain is down significantly. In today’s update, we’ll dive into why that is and explore what businesses are still worried about when it comes to the supply chain.
In January 2023, the Oxford Economics supply chain indicator showed that stress was at a two-year low and was down 16% year-over-year. The supply chain stress indicator looks at transportation, prices, inventory, and labor.
The impending recession is easing supply chain strain because consumers are buying less. On top of that, goods that rose in cost because of the supply chain are now going down in cost again.
In short, more inflation means that there’s less demand, easing some of the supply chain strain has been happening since the onset of the pandemic.
However, that doesn’t mean that businesses are off the hook and that it’s all smooth sailing from here. The biggest supply chain challenge for retailers isn’t availability or delays but rising costs. In fact, 71% of global companies say raw material costs are their top supply chain threat for 2023, and 58% of retailers name rising shipping costs as a significant last mile/fulfillment challenge.
67% of organizations say that meeting customer expectations will be critical to their supply chain structure over the next 12-18 months, which means that maintaining fast delivery times will continue to be a top priority for many brands. Partnering with UPS or FedEx can help businesses speed up fulfillment and last-mile delivery, especially with 22% of businesses saying rising costs with third-party shipment options are a challenge right now. However, with major shippers like UPS and FedEx, don’t ignore the possibility of worker strikes.
Another top supply chain concern right now is increasing visibility into the supply chain, with around 67% of global business leaders saying this is important for maintaining operational stability. Additionally, nearly 50% of global organizations say cyber security will be an important operational challenge for supply chains over the next three years.
How can businesses mitigate the risks involved with the supply chain? One way is to determine intelligent methods to predict what shoppers will buy and the optimal way to price items to get them off the shelf in a timely (but not too timely) manner. Diversifying your supply chain components is also crucial. There could be a major disruption to any sector at any time, so putting all of your eggs in one basket is dangerous. Understanding how logistics work across your entire supply chain will help you make the smartest decisions. Just be prepared to be proactive and agile.
Investing in your supply chain is an inevitable encumbrance for businesses. You can’t neglect getting your products to shoppers. When you have to worry about foundational aspects like simply shipping items to the customers who buy them, finding the time to create and execute an intentional marketing strategy can feel nearly impossible.
The ecommerce experts at ROI Revolution are here to help. With digital marketing mavens with an understanding of all the various channels and how they work together, our team can empower your brand to make proactive, strategic decisions that catapult you toward your goals. To explore the wins we can uncover for you, send a message to our team today.
Supply chain pressures ease, with shipping freight costs down 40%
Supply chain congestion was a major source of stress for businesses and consumers alike over the course of 2022. But by the end of the year, US supply chain health improved tremendously compared to the beginning of the year. Improvements to technology played a big part.
Freight shipping costs are down 40% year-over-year.
Two major trends are prevailing. The first is that businesses aren’t as concerned about running out of stock, due both to the fact that there’s more slack in the supply chain and that holiday shoppers spread their shopping out over the course of Q4 instead of cramming everything in at the last minute. The second is that there’s a reduction in demand overall, which is leading to lower freight volume going to warehouses. The demand reduction is coming from both the consumer side and the business side.
While consumers feel wary about spending their discretionary income due to inflation and the recession, businesses feel more confident that they can get the goods they need from suppliers without having to order in excess.
While the economic downturn has plenty of drawbacks, it is contributing to a stronger supply chain outlook from a cost and availability perspective. With more capacity in ocean freight and trucks, the cost of moving goods is on the decline. This means that businesses will incur lower costs in goods fulfillment, which gets passed onto consumers, so costs should go down somewhat for shoppers.
The cost to move a container across the ocean from China has reduced by 5x.
Rising inflation rates near the end of 2022 were a major stressor for the supply chain because transportation costs grew. Now that shipping costs and container prices are greatly reduced, transportation costs are being driven down.
With supply chain congestion easing across the globe, the challenge now is for retailers to determine what to do with all the excess merchandise they purchased that was more expensive.
What strategic action should your business take to proactively respond? In January, retailers have a massive opportunity to lower prices on high-inventory items and avoid the January post-holiday sales slump. With inflation and the recession top-of-mind for most shoppers, there’s a great opportunity here for both the retailer and the consumer.
At ROI Revolution, our ecommerce experts are poised to help brands navigate economic uncertainty around issues like the supply chain to ensure that profitably doesn’t suffer. If you think an expert team of strategic masterminds could help your brand execute a strategy to reduce risk and grow revenue at a high ROAS, send a message to our team today.
How supply chain strain is impacting holiday shopping
Throughout the course of 2022, railroad worker strikes have been slowing down the time it takes to ship products. Rail unions have been in consistent negotiations with President Biden about how to get their needs met, including more pay and improved sick leave policies.
December 9th is the next chance for a strike to occur. If rail unions and Biden don’t come to an agreement by that date, up to four of the 12 rail unions may go on a strike – representing more than half of all rail labor.
With 30-40% of all goods being shipped via railroad, a railway strike could have significant impacts for retailers and shoppers alike this holiday season.
A strike would not only disrupt shipping times but also increase the price of products across the board – on top of already-rising inflation. That means consumers who are still doing their holiday shopping should try to get it done before December 9th if possible. After that, prices are expected to increase, especially because the cost of gasoline would go up.
On top of a potential rail strike, trucker shortages and clogged shipping ports are creating the perfect storm for supply chain strain right at the crux of the holiday shopping season, when it’s more important than any other time of year for products to arrive on time.
The number of unfilled trucker jobs is down 4% year-over-year from 2021’s record high of 81,258 open jobs – but that small improvement is expected to be temporary. That number is expected to double to 160,000 in the next ten years unless 1.2 million truck drivers are recruited by that time.
US shipping ports are seeing some bigger improvements. Ports in Long Beach and Los Angeles, California that have been facing significant backlogs over the past two years, but container volume is down around 22% year-over-year. Volume will likely increase with the holiday season, but it should help that the ports weren’t as clogged when holiday shopping kicked off.
The supply chain did survive Cyber Week, the busiest shopping period of the year. Cyber Week 2022 was a record-breaking shopping event, delivering over $35 billion in revenue. To dive deeper into what happened this Cyber 5, read our Cyber Week 2022 Results blog!
Supply chain predictions for the holiday season
Supply chain strain is one of the most top-of-mind concerns in ecommerce this holiday shopping season. There’s no more important time of the year for gifts to arrive on time than the holiday season, and the shipping and fulfillment issues that came into motion with the coronavirus pandemic will certainly deliver some stress to shoppers and businesses alike.
Last year, 75% of consumers were worried they wouldn’t be able to find the holiday gifts they needed. This year, 77% say they expect to experience out-of-stock items during the holiday season, primarily in the electronics category.
There are some glimmers of hope, however. One is that UPS expects its holiday season package volume to be lower in 2022 compared to 2021 due to Amazon having more of its own delivery drivers, which will hopefully help qualm some on-time delivery concerns.
Additionally, many brands and retailers proactively stocked up on inventory earlier in the year when supply chain concerns were greater to make sure they would have enough product in stock. Not long after, inflation rates began to rise and consumer spending crunched, leaving many brands with an overflow of inventory – inventory that’s perfect to sell at a discount during this year’s holiday season, a time when consumers are searching even harder than usual for deals.
One way that shoppers are navigating the supply chain strain is by starting their holiday shopping earlier. Around 2 in 5 consumers plan to shop earlier this year than they did in 2021.
For the latest news and stats on this year’s holiday shopping season, read our regularly updated blog on 2022 holiday ecommerce shopping!
Looking for more 2022 holiday ecommerce advice? Peruse our resources below!
- Should You Run A/B Tests During the Holiday Season?
- Video: Q4 2022 Holiday Trends (Google Think Retail Event Recap)
- 8 Holiday A/B Tests to Boost Your Ecommerce Growth This Holiday Shopping Season
- 7 Ecommerce Strategies to Prepare for the 2022 Holiday Shopping Season
- 6 Holiday Ecommerce Strategies for 2022 That Your Brand Can’t Afford to Ignore
- 5 Actionable Tips to Create a Profitable 2022 Holiday Ecommerce Strategy
- Is Your 2022 Amazon Holiday Strategy Primed for the Prime Fall Deal Event? (UPDATED With Results)
- 5 Signs You Could Benefit From Ecommerce Fraud Prevention This Holiday Season
Updates on supply chain worker strikes
Our last few updates have covered strikes with railway workers and truckers. In today’s update, let’s take a look at how those strikes have panned out.
On the day of our last update, railway companies and workers came to a “tentative agreement” that includes a 24% pay raise, bonuses of up to $5,000, and less strict attendance policies. The deal came after over 20 hours of negotiations at the White House.
Railway union workers haven’t yet voted on the deal. There’s currently a “cooling off” period going on for a few weeks before the vote takes place.
As far as truckers, the threat of strikes hasn’t gone away yet. Aside from protesting gig worker labor laws and asking for new labor contracts (see our August 23rd update for more on that), many truckers are having to work overtime to keep up with high shipping demand when there’s already a shortage of truckers.
There’s still an ongoing threat that truckers and railway workers alike will protest their strained working conditions, which would drastically impact the upcoming holiday shopping (and shipping) season). Stay tuned to this blog for all of the latest updates as supply chain strain continues to impact brands and retailers around the country.
Railway strikes could bring significant shipping disruptions – and cost the economy $2 billion
30-40% of US goods are transported by train – so potential railroad worker strikes that could start on September 16th could add significant disruption to the supply chain. Railways were already congested, with some railways recently having to suspend imports temporarily.
On top of trucker protests (see our August 23 update for more on that), manufacturing delays, and already-congested ports, the railway disruptions could have a major impact on logistics and shipping as we approach the holiday shopping season.
“Our demand and our supply are not balanced right now. Having a rail disruption is going to impact everything from raw materials to manufacturing and obviously to the consumer and the availability of goods down the stream.” – Abe Eshkenazi, CEO, Association for Supply Chain Management
The railway workers are protesting with the goal to get a wage increase and better benefits, including more predictable scheduling and the ability to take time off for a doctor’s appointment without penalty. Rail companies brought an offer to the workers, but the workers say it didn’t meet their requests.
Some of the nation’s biggest railway systems, including Norfolk Southern, CSX, and Union Pacific, have all announced contingency plans in preparation for the potential strikes to commence.
The strike could cost the economy over $2 billion per day and account for 90,000 railway workers.
The major ports in Los Angeles and Long Beach, California continue to experience significant strain. Almost 80% of shipping containers at those ports are taking more than five days to be moved to a train, compared to just 15% in January 2022.
The state of the supply chain in Q3
Supply chain constraints are the lowest they’ve been since January 2021, with the Federal Reserve Bank of New York saying the pressure index dropped for the third month in a row in July.
Levels are still much higher than usual. The index is at 1.84 standard deviations above average value, compared to 0.05 in January 2020 before the pandemic hit.
Southern California ports are the main gateway for goods being imported from Asia. Those ports have experienced slowdowns this year but they haven’t been as bad as in previous years, when over 100 containers were backed up there.
While backups have slowed down at crucial southern California ports, they’re picking up at some key east coast ports. On August 19th, around 30 ships were backed up in Savannah, Georgia – the second largest port on the east coast. Container volume is up 12% at New York and New Jersey ports, and 24% in Houston.
The backups are due to the shipping industry’s struggle to recover from pandemic-related issues. At the beginning of the pandemic in March 2020, consumers drastically cut back on their spending, and imports and exports were down at the ports. When the stimulus checks started to roll out a few months later, shipping ports weren’t prepared for the sudden spike in sales. That bounceback really hasn’t slowed down and the fulfillment industry has been left scrambling.
To help with the backups on the west coast (in addition to labor strikes – scroll down to last month’s update for more on that), many manufacturers diverted cargo to east coast ports.
Trucking yards are also filling up with empty containers waiting to be able to be picked up for 6-7 days – twice as long as usual. When ports become too overwhelmed with cargo, there’s nothing to do but for shipping yards to buy more land or wait it out. Ocean carriers may start to be charged for containers that sit out empty too long.
One thing that may be helping is that retailers and merchants ordered earlier and more products throughout 2022 due to fears of experiencing delays like last year. Experts indicate that this year’s peak shipping season is expected to be a lot softer than usual and the bottlenecks are expected to subside, even as sales go up for the holidays.
Holiday season supply chain concerns
Ports in LA are seeing bottlenecks again.
When this happened last November, it was due to a surplus of empty shipping containers that weren’t able to be picked up. But this time, the strain is due to a shortage of rail workers.
As the holiday season starts to ramp up, containers are already piling up at some cargo ports, awaiting trains to take them to their destination.
35,000 containers are waiting to be picked up by trains right now. That number is usually around 9,000. If nothing is done, there will be serious backups in the next 4-6 weeks.
Many railways have cut back on workers to streamline operations and have a more precise schedule, but the labor shortage is now making things more difficult. Railroads are now hiring more employees in anticipation of the holiday season.
“When you’re hyper-efficient, you’re ill-prepared for unexpected things like pandemics.” – Ben Nolan, Stifel Financial Rail Infrastructure Managing Director
The railways move products and containers inland from shipping ports. But once products make it out of the ports and to their next location, they face another issue: truck driver shortages. Right now, the trucking industry is short around 80,000 drivers – an all-time high.
Truckers at the Port of Oakland who are protesting California’s gig worker labor law (known as AB5) and blocking entrances to container terminals are also causing further delays.
A quick breakdown of the law: A huge portion of truck drivers are independent contractors and owner-operators of their own trucking affairs. With AB5, it’s estimated that 70,000 truckers who own and drive their own trucks would have to become an employee or part of a union in order to work. The Supreme Court recently made the decision not to hear a case that would have protected truckers from being impacted.
The bottlenecks are on the last mile. With more goods and fewer workers, backlogs are spiking again – and the containers keep coming. More trains are needed, but sufficient infrastructure and workers to assist with the shipping are both lacking.
On-time shipping is critical during the holiday shopping season, and the labor shortage is going to be a key component of supply chain strain during Q4.
The supply chain strain is one component of rising inflation and product prices. Higher fuel costs also contribute to higher cost of products. AAA forecasts that the cost of gas will continue to rise for the remainder of 2022.
Even Target has had to make numerous major cutbacks to its quarterly profit forecasts due to rising fuel costs and inflation. Target started 2022 with a forecasted operating profit margin rate at around 8%. After operating income fell by 43% in Q1, the retailer brought that down to 6%. Now, Target’s operating margin rate sits at around 2%.
For many retailers, the key to staying profitable will be to reduce inventory.
Congested ports also mean that there are fewer available containers. The lower supply leads to rising demand – which leads to higher shipping rates.
August is traditionally the start of the peak season for ocean shipping.
When supply chain concerns skyrocketed last year, many retailers increased the amount of stock they would buy at a time in order to avoid issues with getting more products. But a lot of those products didn’t perform as well as expected. Now, the issue lies in selling that inventory at a profit and having room to sell products that customers actually want. On top of that, with so much merchandise already on the floor and in warehouses, many retailers are delaying or canceling their orders with importers, leading to even more of a shipping container backlog.
The fact that everyday items like food and gas are becoming more expensive adds to that strain, with consumers less likely to spend their additional funds on discretionary items.
In such an uncertain market that’s constantly shifting, inventory management will be a significant concern for brands and retailers across the globe this holiday season.
The current state of supply chain strain
Supply chain issues that kicked off at the start of the pandemic in March 2020 and spiked in Q4 2021 have remained heightened in 2022. Shipping and fulfillment top-of-mind for 36.8% of ecommerce professionals, making it the 6th biggest marketing trend for 2022.
The top supply chain challenges for brands selling through ecommerce are delivery expectations and transportation capacity.
Technology is a key driver of relief for shipping and delivery companies. 49% of industry professionals from a survey of logistics companies say they’re upgrading their transportation management system and 36% are leveraging automation.
Indeed, ROI’s State of Digital Marketing Survey found that automation and AI are top-of-mind for 33.9% of marketers this year.
As ecommerce continues to surge year-over-year, the supply chain isn’t going to get a break anytime soon. US retail ecommerce sales are expected to reach $1 trillion for the first time ever in 2022.
The labor shortage is also putting strain on the supply chain, affecting company operations for 77% of professionals who are involved in ecommerce fulfillment. The labor shortage has also resulted in higher labor costs for 59% of professionals.
The manufacturing industry has been heavily impacted by the labor shortage. After losing 1.4 million jobs at the onset of the pandemic, manufacturing jobs struggled to recover. According to the US Chamber of Commerce, the durable goods manufacturing industry has more unfulfilled job openings than people who have the necessary experience for these roles.
Supply chain insights from ROI’s Ecommerce Marketing Trends Report
Today’s successful brands are able to evolve in a dynamic marketing landscape. You generate revenue more efficiently when you fully understand the digital environment where your brand lives. As consumer expectations rise and new marketing channels emerge, how can you feel confident that your brand’s ecommerce strategy is profitable?
In ROI’s Ecommerce Marketing Trends Report, you’ll uncover data from a survey of 170+ digital marketing professionals about the trends that are top-of-mind for their brand. You’ll access exclusive data-backed insights about the current state of ecommerce marketing, like:
- The top focus area for 50% of brands with over $1 billion in annual revenue
- Industry impacts of supply chain strain for apparel, home goods, electronics, & more
- The most top-of-mind ecommerce trends right now according to decision-makers
Seize your chance to thrive in today’s multifaceted digital terrain. Download your report for an exclusive analysis of internal and external data to get a clear picture of ecommerce today.
Electronics & auto industry supply chain disruptions
The electronics industry has been hit particularly hard by supply chain disruptions. Nearly every digital device developed today is powered by semiconductor chips, which have been experiencing detrimental supply chain issues around the globe since early 2020. With the surge in demand for video streaming, 5G, and cloud-based services that have been growing since the onset of the pandemic, chip manufacturers have been struggling to keep up.
Within the electronics category, the auto industry is struggling because it also needs these chips to install digital displays, safety sensors, and other important capabilities in cars. Part of the issue is that consumer interest in cars declined in 2020 when traveling and commuting took a backseat, bringing the focus and preference to the needs of other electronics companies. In fact, the cost of these components per car has gone from $312 in 2013 to nearly $600 in 2022. By 2030, electronics will make up 50% of the cost of manufacturing a car, up from 35% in 2010.
Manufacturers like Intel, Samsung, and Texas Instruments have multi-billion-dollar plans to build new US plants for chip production in the coming years. Still, Forrester predicts the global chip shortage will continue into 2023.
How digital marketers feel about shipping and fulfillment
Supply chain woes that have been snowballing since the onset of the pandemic are continuing to impact brands and retailers around the globe as Q1 2022 comes to a close. Now, the Russia-Ukraine crisis is introducing another potential obstacle. Products from gasoline to computer chips to wheat may become more difficult – and more expensive – to purchase.
In January, prices for consumer products grew at the fastest rate in nearly 40 years.
This year, the US Federal Government will spend tens of billions of dollars on port projects to alleviate supply chain strain. It comes as no surprise that shipping and fulfillment are top-of-mind for digital marketers, ranking as the 6th most important trend this year according to ROI survey data that asked 170+ digital marketing professionals about their biggest initiatives and concerns for 2022.
36.8% of marketers say shipping and fulfillment are top-of-mind for their brand in 2022, including 44.2% of managers and 33.7% of decision-makers.
Supply chain concerns also vary in importance between industries. 58.8% of brands in the home goods industry say shipping and fulfillment are a top trend for them this year, compared to 20.7% of apparel & accessories brands. 52.9% of brands in the materials & supplies category say shipping and fulfillment are top-of-mind for them this year.
Hungry for more data from our marketing survey? In our 2022 State of Digital Marketing Report, we reveal expert insights from the data with charts, analysis, and predictions for ecommerce in 2022. Download your report to discover more and help guide your brand toward a profitable year.
What you need to know about the supply chain today
The new year kicked off with retailers continuing to feel supply chain strain. According to data from Oxford Economics, as of January 2022, supply chain stress was rising the most for transportation, followed by prices, activity, inventory, and labor.
Inflation has been up across the board, and the shipping industry hasn’t been immune to that. At the end of 2021, the inflation rate was up 50% year-over-year for raw materials used in durables manufacturing and up 30% for nondurables.
Start-ups that are looking to solve the supply chain crisis have been getting impressive funding from venture capital firms, receiving more than double in 2021 what they received in 2020. In 2021, supply chain management start-ups received $11.3 billion in funding.
The global supply chain started to experience increased stress around July 2020, with stress climbing in March 2021 and then again around September 2021. Despite attempts from the US Supply Chain Disruptions Task Force, backups at key southern California shipping ports only eased slightly in December and January.
Shipping ports in Long Beach and Los Angeles, California – which bring in 40% of all shipping containers that come into the US – have seen a 67% decline in aging cargo since a program was launched in October 2021 to help quell delays. As supply chain issues shrink in some areas but remain in many others, the policy has been up for reconsideration (and postponed) several times to help keep issues at bay.
The Task Force is also pushing toward a 24-hour supply chain system by adjusting fees at shipping ports to incentivize more shipments to come in during the night.
Business impacts of supply chain strain: Nike, Home Depot, Ikea, & More
Supply chain troubles are requiring many businesses to raise their prices – including furniture retailer Ikea. The company has been experiencing supply chain cost increases since the onset of the pandemic but was able to absorb them until recent increased strain across the supply chain required them to raise their prices.
Much of its furniture has increased up to 50% in cost, with a spokesperson attributing the sharp rise to “a significant increase in costs across the supply chain, including raw materials, transport, and logistics.”
Supply chain strain has also been causing significant issues for Bed Bath & Beyond. The home goods retailer saw significant growth in 2020 with the industry seeing significant growth at the onset of the pandemic, but sales figures are now dropping below pre-pandemic numbers. The company changed its 2021 sales outlook from $8.1-$8.3 billion to $7.9 billion, representing a loss of up to $400 million.
Bed Bath & Beyond CEO Mark Tritton says that despite customer demand, sales have been pressured “due to the lack of availability with replenishment inventory at supply chain stresses.” For Bed Bath & Beyond, these stresses equated to around $100 million lost in Q3 2021, with December feeling the impact even more.
Other impacted retailers include Under Armour, whose inventory was down 21% in Q3 2021, and Old Navy, which lost an estimated $650 million in sales in 2021 due to supply chain backups. Nike lost 10 weeks of production after factory shutdowns last summer in Vietnam, where 51% of its footwear and 30% of its apparel is made
Home Depot has not been impacted as badly as other retailers by supply chain woes, largely due to taking proactive measures by making major investments in supply chain innovation in 2018.
The current state of supply chain strain
As we start 2022, the supply chain is seeing some slight improvements from changes being made to prevent delays and backups. Ocean shipping prices are down from September, but still more than triple what they were in December 2020. Supply chain woes weren’t as bad as experts feared over the holiday season, with on-shelf availability at 90% over the shopping period.
After severe delays at container ports in Los Angeles and Long Beach last fall (see our November 3rd update for more on that), President Biden announced at a Supply Chain Disruptions Task Force in December that the number of containers dwelling at the southern California ports had gone down nearly 50%. The average dwelling time for containers at the port in LA was down to four days from nine days in mid-October.
Making optimizations across the supply chain will be crucial to recovery. 300,000 manufacturing jobs were added in 2021, and FedEx added 14.4 million square feet to support package sorting in 2021. The in-the-works infrastructure bill would provide $17 billion in funds to speed and modernize the ports.
Many retailers are raising their prices and expanding their domestic manufacturing capabilities to cope with the issues. At the same time, as workers demand appropriate wages, manufacturers have increased wages by an unprecedented 3.5-3.8%. Costs are rising across categories for consumers and businesses alike.
The Omicron variant poses an additional threat to the labor portion of the supply chain, with cases and hospitalizations rising around the globe. As many businesses learned at the onset of the coronavirus pandemic, factory shutdowns pose a threatening bottleneck. We’ll continue to keep you posted on supply chain updates and their impacts on ecommerce as news comes in.
How the supply chain crisis impacted Cyber Week
For the first time ever, online Black Friday sales didn’t see annual growth this year. Ecommerce sales hit $8.9 billion after reaching $9 billion in 2020.
With the supply chain crisis leading to extremely delayed shipping times, many retailers strategically decided to start their holiday sales earlier than ever this year. Shoppers who walked into stores or visited their favorite brand’s website in early November or even October would notice exceptional deals that would normally be unheard of outside of Black Friday or Cyber Monday.
Instead of waiting until Cyber Week and risking products not being delivered in time, holiday shopping started early for retailers and consumers alike.
Cyber Monday also declined 1.4%. Online spending on Thanksgiving saw no change, reaching $5.1 billion for the second year in a row.
A mixed bag of issues: More on how the supply chain is impacting 2021 holiday shopping
Supply chain woes are not expected to have a horrendous impact on holiday sales this year, with retail sales still expected to grow 11% over last year’s holiday season. That would also amount to 8.6% retail growth for Q4 overall.
Impacts will be more significant for smaller businesses, though. For large retailers like Target and Walmart, spending money to hire extra workers, get extra containers, or purchase materials that have skyrocketed in price isn’t so difficult. But for small retailers that carry everything out with a small staff, getting products created and delivered is a lot harder this holiday season.
The supply chain issues are also a piece of the puzzle that is rising inflation, which is currently at the highest levels since 1990 – yet another reason why holiday shoppers have been right to start shopping early. Many retailers are offsetting the added costs from supply chain strain by putting them onto customers.
What happens when the biggest shopping day of the year happens in the middle of a supply chain crisis?
Black Friday is the busiest shopping day every year. Last year, Cyber Monday was the biggest day for online shopping in US history. And the other days that make up Cyber Week – the five-day period spanning Thanksgiving to Cyber Monday – always rank among the top shopping days of the year.
Almost two years into the coronavirus pandemic, marketers all understand that not everything shakes out like you think it will – and sometimes, the thing your brand least expects is what happens.
This year’s Cyber 5 will be no exception, with supply chain issues that started to crop up at the beginning of the pandemic snowball into a global supply chain crisis. From material and inventory shortages to labor shortages and wage concerns, all the way to clogged shipping ports and a lack of available containers, are all making it difficult for brands to produce products and get them out to customers.
To cope, many retailers have been spreading their Black Friday and Cyber 5 deals throughout the months of October and November instead of having specific deals on Black Friday. 67% of retailers are encouraging customers to shop early this year. The hope is that consumers will purchase gifts earlier to help ensure that they arrive in time for the holidays. In fact, 3 out of every 4 retailers will offer fewer Black Friday deals this year.
Supply chain issues make for yet another unprecedented holiday shopping season
It seems like headlines rave about holiday shopping starting earlier than ever every year, but 2021 is no exception with the recent surge in supply chain strain. A survey conducted by Oracle in September found that one in every five Americans had already purchased their first holiday gift.
Consumers are finding various ways to minimize the impact they feel from major issues with shipping and fulfillment during the busiest shopping time of the year. 44% of Millennials plan to purchase more gifts than they need to just in case some orders are delayed or canceled, while 58% of Baby Boomers say they’ll try to avoid the issues by purchasing more gift cards than usual.
In-store shopping may be more emphasized this year, with 66% of consumers now feeling comfortable shopping at indoor shopping malls (especially when mask mandates are enforced). In fact, 27% of consumers say they’ll be making more purchases in stores than online this holiday season to avoid supply chain issues. (For more news on how the coronavirus pandemic has transformed shopping, visit our How COVID-19 Is Impacting Ecommerce blog post!)
Retailers should also prepare for a potential surge in holiday gift returns that could even further complicate the supply chain issue. Your brand’s audience may dictate how much of a problem this is for you – 48% of Millennials plan to return half to all of their gifts, while 90% of Baby Boomers have no plans to return any of their gifts!
How Target and Walmart are mitigating supply chain issues this holiday season
Target and Walmart are assuring customers that their stores won’t be impacted by global supply chain issues this holiday season. With more cash flow and resources than smaller businesses, these large retailers are able to more easily navigate the uncertain waters.
Target is focusing heavily on providing an easy holiday shopping experience this year. To keep to that promise, Target is rolling out changes to its shipping infrastructure including hiring 30,000 permanent team members for its supply chain and moving the majority of their containers at clogged southern California ports (more on that in last week’s update) during the night to keep ports clear during the day.
Target’s stores-as-fulfillment model also makes it easier for customers to get their products. According to a press release, the retailer’s inventory is up substantially over this time last year.
Walmart is working to improve inventory levels and was up year-over-year in Q2. To keep their promise of mitigating supply chain issues, Walmart is making changes like expanding delivery capabilities to deliver online orders straight from stores, hiring 20,000 permanent supply chain positions and over 3,000 new drivers, redirecting transportation routes on both land and sea, increasing pay for supply associates, and more.
Not a container shortage, but a surplus: What’s going on?
The reasons underlying the global supply chain crisis are manifold. Brands and retailers around the world are facing issues ranging from material shortages to not being able to get products onto containers to major shipping delays.
One of the biggest issues revolves around not a shortage of containers, but a surplus. Some major ports are overflowing with empty shipping containers, making it difficult for ships with full containers to get to land.
Two southern California ports that together bring in 40% of all shipping containers that come into the US are currently facing this problem. Typically, when a ship comes into port, it will drop off a container and pick up an empty container in its place. But with docks full, ships aren’t able to offload their full containers to pick up the empty ones. There’s also not much extra space for empty containers at the ports.
This results in a continuous cycle where ships aren’t able to offload their products because ports are full, and ports aren’t able to get rid of their containers because the ships can’t remove their full ones.
To help the issue, the mayor of Long Beach, CA changed zoning rules to allow four empty containers to be stacked on top of each other instead of just two.
The many pieces of the supply chain weren’t prepared for the surplus of ecommerce purchases that has been happening since March 2020. The backlogs at US ports are expected to continue into mid-2022.
What’s the reason for the supply chain strain?
Businesses, retailers, and consumers alike are all becoming increasingly concerned with supply chain congestion that is causing major shipping delays.
The COVID-19 pandemic catalyzed what some are calling a shipping crisis. With shoppers being more frivolous about their discretionary spend along with shopping less in stores last year, retailers were selling less and had less of a need for their shipping containers, and the containers were put away and saved for later. Then, consumer demand for products surged earlier and more than expected, leaving retailers and container companies unprepared and unready.
Now, it’s incredibly difficult for many retailers to find available space on containers, or even available containers in the first place. With demand for freight high and supply so low, it’s becoming very expensive for brands to ship the products their customers buy – and their products are still likely to be delayed.
Rising freight costs are a huge risk to profits. In some cases, freight costs are over half the value of the products being shipped, which is typically unheard of for most industries. Shipping rates and import costs are increasing each month. Inventory flow is almost impossible to predict, making it difficult for retailers to plan or make decisions with precision.
Consumers are feeling the brunt of the impact with delayed shipping times, which is often a deciding factor in a customer’s purchase decision. It will be crucial for retailers to communicate realistic expectations with shoppers, especially as we approach the holiday season.