It’s not often that the supply chain gets a lot of press (outside of the holiday season, of course). However, the usually behind-the-scenes operations at ports, warehouses, and on America’s roadways have taken center stage in the public consciousness in 2021. Why is that?
For one, US consumers continue to spend in record-breaking numbers despite shortages of everything from shipping containers to delivery drivers. E-commerce has dominated the marketplace in a time when uncertainty about COVID-19 leaves many consumers wary about brick-and-mortar shopping. Now, container ships are backed up at many major American ports and creating significant bottlenecks — and the holiday season has only just begun.
Every year, we take a look at the Logistics Managers Index (LMI) report to get a better understanding of the challenges and opportunities facing warehousers, freight forwarders, and e-commerce retailers. What has changed since 2020? Let’s discuss the report’s findings and what they mean for this upcoming holiday season and retailers in general.
Inventory numbers are rising, but warehousing and transport availability isn’t
The Logistics Managers Index tracks capacity and price changes in key indicators of the supply chain to tease out trends and make accurate predictions for the year to come. According to their research, many of the trends outlined last year continue into this one, with added intensity and pressure in some segments.
For one, inventory metrics have been in a period of “significant expansion” all but two months since last year at this time. While inventory peaks are something that has happened in the past, the length of time and high level of growth is something unprecedented since at least 2016. This current sustained peak is a product of both high demands for e-commerce products and the long-term effect of structural issues that the industry has yet to address. There are serious and impactful bottlenecks at every part of the supply chain, from the port to warehousing to last-mile.
The problem at the ports
Take for example the delays at major ports, which are due to many different factors acting at once.
One big concern is a lack of warehousing space and transportation capacity that leaves ships to sit in the bay awaiting drayage. Some ports, including the Port of Los Angeles, are moving to a 24-hour model to alleviate congestion, which will hopefully move cargo out of bays. But without an expansion of places for those shipments to go — ready and waiting trucks, train cars, or portside warehouse space — slowdowns will continue to lead to bottlenecks for essential cargo.
Fortunately, the LMI does predict an expansion of both transportation and warehousing capacity in the next 12 months.
What’s this mean for retail — especially e-commerce?
Warehouse pricing is going to continue to increase in the near term. Securing fulfillment space in competitive markets will be challenging and likely costly. However, estimates produced by the LMI suggest that we should see more capacity continue to come online while utilization should remain flat (or even decrease). In time, expanded capacity will level prices after a long period of tightened warehousing availability. That change may take time, unfortunately — LMI predictions for higher prices extend into Q4 2022 at least.
That said, we saw a similar dip last year before inventory shot back up, so we’re keeping an eye out to see if this pattern follows as warehouses fulfill orders for the holiday rush.
What do you do when you can’t bypass the strained supply chain?
Some companies have the flexibility to utilize chartered ships or air cargo to expedite transnational shipping. Others own their warehousing to streamline and consolidate their supply chain. But obviously, that luxury isn’t available to everyone.
Many mid-size and large e-commerce retailers are looking to expand their logistics and warehouse footing. However, a lot of them are wary about making a large investment given the uncertain ebbs and flows in pandemic demand. More e-commerce retailers than ever are choosing an alternative path to stay competitive in an increasingly cutthroat marketplace.
A 3PL partner that owns and manages warehouse space can provide seamless solutions to inventory management concerns. Third-party logistics firms that are situated at urban ports can easily manage fulfillment and store additional stock near the consumer base for fast, seamless delivery — and a welcome solution for your numerous inventory management concerns.
Better yet, 3PL warehousing and freight forwarding are scalable to meet rapid changes in demand, giving brands the leeway to build up for holiday shopping (or scale back for unexpected shifts in pandemic demand) without a years-long commitment.
If we follow LMI’s reports and they’re accurate, the decreasing capacity for transportation and warehousing could put a lot of added pressure on e-commerce and other retailers. In order to stay competitive, e-commerce retailers need to find strategies to overcome these supply chain bottlenecks.
Trends are likely to continue into next year but with the right partners, you can compensate for changes and remain agile in a challenging supply chain environment. An experienced 3PL partner like GlobeCon can provide flexible drayage, intermodal transport, and freight forwarding, and warehousing strategies to overcome uncertainty in the e-commerce retail marketplace.