Prime Day, peak season, and the never ending container crunch
Since the beginning of this year’s unprecedented import boom experts have been attempting to predict when demand would calm down. At first, many were indicating that things would settle down around Chinese New Year, as supplier’s in China closed their doors for the holiday celebrations.
However, very few factories closed down and goods continued to pour out of China, over the Pacific, and into Southern California ports. From there, climbing demand, port congestion, and equipment shortages exacerbated the already strained supply chain issues and predictions for when the storm would be over were pushed out again and again and again.
Now, even conservative headlines indicate that experts don’t see any way the supply chain chaos will settle down before 2022.
So, since it looks like things aren’t going to calm down anytime soon, what will the rest of 2021 look like for the freight industry? Let’s break it down.
Prime Day and its consequences
Amazon.com, the world’s largest ecommerce platform, brings in 2 billion unique visitors every month and they just had their biggest shopping event of the year. According to Freight Waves, Amazon’s online sales jumped 8.7% to $5.6 billion on Monday, the first day of the retail giant’s annual Prime Day.
Other retailers, like Target and Walmart, who also introduced sales for the event, saw huge jumps in sales as well.
This sizable increase in sales will have two effects on the current supply chain environment. The first is in the last mile sphere. Already bogged down parcel carriers like USPS, FedEx, and UPS will now be dealing with yet another spike in retail shipments as a result of these sales. Recently announced peak season surcharges indicate how much this sector is struggling already and as they prepare for the holidays.
Prime Day related Last mile issues will affect both the carriers and the retailers, as customers expect that their purchases will arrive in a timely manner, however ongoing delays are affecting on time deliveries and dwell times in the retail industry. This can impact customer satisfaction and their relationship with the retailer. For the carrier, the spike will lower parcel carriers already struggling performance metrics.
Additionally, the sudden uptick in sales will further deplete existing inventories for retailers. As reported by Freight Waves, the inventory-to-sales ratio is at a historical low. Excluding automotive sales, which greatly skews the data, inventories were down to 1.04 months of sales in March, which is the lowest reading ever seen.
As retailers, including Amazon sellers, attempt to close the gap on inventory gaps, there will likely be even more orders for containerized goods, stretching the already high-wire tight ocean shipping network
Early peak season
In a normal year, traditional peak season usually lasts from October to November, but as this year has been anything but traditional, it’s hard to believe peak season will follow “normal” patterns. Peak season is a term used to describe the time period before the major end of the year holidays where retailers generally restock their inventories for holiday shopping. Thus, the period before is the busiest season of the year for international shipping.
This year, however, retailers are going into peak season with historically low inventory. Therefore, many retailers will need to make significant orders to have the level of inventory they had going into the 2019 holidays. The problem is that the trans-Pacific shipping network has effectively reached its limit and the only space shippers can secure may cost them up to $20,000 or more for a TEU.
Unfortunately, shippers will only get the chance to pay that amount if they can secure space and with almost all capacity eaten up or stuck at a port somewhere, getting your cargo a spot on a ship is getting more and more difficult. Additionally, as a result of port congestion, almost all shipments are facing some level of delays.
With the factors of low inventory, astronomical rates, reduced capacity, and lengthy delays, the strategy for almost everyone will likely be to start ordering for the holidays early. The question, however, is is it already too late?
With the booking data continuing to rise and no lull in consumer spending in sight, the clock is certainly ticking. Shippers who are hoping to capitalize on holiday sales are going to need inventory and they need to order it sooner rather than later.
While ocean shippers are usually able to fall back on air freight if they run into a time crunch, according to the JOC, that may not be possible this year. Air freight experts are expecting an early and huge peak season and there may not be space to bail out a stranded ocean shipment.
What, then, should shippers expect for the remainder of the year? Unfortunately, more of the same. Back to school and the holidays will continue to drive the import boom as retailers struggle to regain pre-COVID inventory levels. Ocean freight will continue to be severely impacted until the end of the year and air freight may be hard to come by as well. Domestically, expect the last mile to be a challenge as well trucking due to congestion and a shortage of truck drivers.
How can a shipper survive? Book early, pick knowledgeable partners, and diversify your supply chain. Want more information on how Freight Right can help you weather this storm? Contact us!
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A typhoon in eastern China has put the largest and third-largest seaports in the world, along with several airports, out of commission for several days.