A Grinch Holiday Season
It’s October and the official start of Peak Season in the world of logistics and retail.
Unfortunately the impact of the pandemic on supply chains has not improved and in many cases it’s become worse. Factory closures, lack of materials, and shortage of labor (see below) are all contributing to what looks like a pretty bleak holiday season.
Some of the economic strain could be helped by buying local, which has certainly become a trend with food in recent years. Buying local may ease some pressure on international supply chains but it’s a drop in the bucket. And of course there’s always a chance that Santa and his elves can create a miracle at the North Pole.
Many companies are bracing for a tough economic forecast however, and it’s not because of a lack of demand. It’s the opposite. Goods are stalled in China, Vietnam and all over the globe, with no way to transport them to the US and other key markets in time to make it into seasonal inventory, resulting in far more limited shopping options. If consumers spend less during Peak Season, it will in turn have a detrimental effect on the American economy. Retailers are already sounding the alarm to shop early or prepare to be disappointed.
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Transportation Costs
There has been recent discussion in the industry about transportation costs affecting product pricing. The cost of moving goods has increased almost 20% since 2019 (FreightWaves 10/21) but these increases haven’t been truly felt by consumers. Product price sensitivity is primarily due to marketing expenses, retail mark up and of course demand.
Today’s transportation fees just aren’t keeping pace with the corresponding increases in labor, fuel, equipment and infrastructure to move goods safely and efficiently. Especially labor. While shippers try to cut transportation prices to the bone, online shoppers have unrealistic expectations, largely driven by Amazon, that shipping should be fast and free.
The old adage that you can have 2 out of 3 in the time, cost and quality triangle applies to shippers and carriers alike: “Do you want it fast, cheap or good…pick two.” Retail Wire reported that both UPS and FedEx are raising rates and prioritizing more profitable shipments. Some marketers are now adding packaging and handling fees to cover added costs. So far, transportation has remained a relatively small percentage of the overall cost of a delivered item, but that may change as the increasing cost to store and move goods, combined with high demand, catches up with the marketplace.
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Happy Halloween!
As we’re so close to Halloween, we thought it would be fun to share some of the lesser known origins of the tradition.
Since the Middle Ages in Britain and Ireland, a tradition called “mumming” involved going door to door in costume, performing short scenes from plays in exchange for food and drink. The custom of trick-or-treating may come from the belief that supernatural beings, or the souls of the dead, roamed the earth at this time and needed to be appeased. Similar beliefs and customs were found in other parts of Europe where people impersonated the spirits and demanded a reward in exchange for good fortune.
The wearing of costumes or “guising” at Hallowmas is first mentioned in the 16th Century, most famously by Shakespeare in Two Gentlemen of Verona. In 1895 Scotland masqueraders in disguise carried lanterns made out of scooped out turnips and visited homes to be rewarded with cakes, fruit and money. The earliest known occurrence in North America of the practice of dressing up for Halloween was 1911 in Ontario, Canada. Trick or treating does not seem to have become a widespread practice in the United States until the 1930’s.
This year, an estimated 65 percent of Americans plan to celebrate Halloween, with US consumer spending on related items expected to reach an all time high of $10.14 billion, up from $8.05 billion in 2020. (National Retail Federation) Shippers and retailers plan long in advance to capture this all too brief but highly lucrative market. And as soon as the sun rises on November 1, stores are full of turkeys and jingle bells and we’re onto the next phase of Peak Season. In the meantime enjoy this long standing tradition and join with the spirits to celebrate All Hallows Eve.
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Where Did Everyone Go?
Carriers looking for help to move products during the pandemic were faced with a myriad of obstacles. One root cause for a shortage of labor cited by many was the availability of enhanced unemployment benefits for most of the past year. Those extra payments, while well intended and often necessary, kept many out of the workforce for an extended period. Even though those benefits recently ended, a lot of the continuing woes across the supply chain are still labor related.
With production slowly coming back online, ongoing labor shortages have resulted in a lack of containers to ship freight, port capacity and dockworkers to unload freight, truck drivers to move it across country, distribution and warehouse workers to pick and pack it, and delivery drivers to take it the final mile.
Ghosting has become a new phenomenon as well. Companies may set up dozens of interviews, but only a percentage of those recruited will actually complete an interview and even less show up for work on day one - even if they have verbally accepted the job. Logistics providers are generally at a loss over how to fix the problem and keep trying different approaches while hoping the landscape will change over time.
As a result there are bottlenecks everywhere and it’s unlikely these supply chain issues are going to end soon. Federal Reserve Chairman Jerome Powell recently lamented that, “It’s frustrating to see the supply chain problems not getting better. In fact [they are] apparently getting worse.” He sees them continuing well into 2022.
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