The U.S. economy is roaring back to life as we enter the year’s third quarter and more Americans become vaccinated. Retailers, working to restock their inventories as demand returns, face supply chain challenges that have persisted for more than a year, including port congestion, equipment shortages and skyrocketing freight rates. Exacerbating shippers’ supply chain woes have been extraordinary crises like the six-day blockage of the Suez Canal and the massive winter storm in February that led to road and distribution center closures and manufacturing plant shutdowns.
Although coronavirus cases are dropping in the United States, high infection rates in major trade gateways like Yantian have interrupted and delayed supply chains globally. Distribution center labor shortages and overwhelmed transportation networks are worsening delays, threatening to hamper retailers’ restocking efforts as they gear up for the back-to-school and holiday seasons.
To help you stay on top of industry developments that could affect your business heading into Q3, we’re sharing the latest updates in supply chain—and how Visible can help you navigate these challenges.
Strong demand from retailers, massive port delays and the aftereffects of the Suez Canal blockage have contributed to a shortage of ocean freight capacity, sending shipping costs soaring at a historic pace and affecting carriers’ schedules. The Wall Street Journal reports that as of March, only 40% of container ships were arriving on time.
According to Freightos, Asia-West Coast spot rates reached a record-high of $6,341 per forty-foot equivalent unit (FEU), up 194% year over year. East Coast-West Coast rates hit $2,976 per FEU and Europe-East Coast rates reached $5,193 per FEU—both new records. Rising rates are concerns particularly for smaller businesses that may not be able to weather these costs or supply chain challenges, which are expected to continue into 2022.
In addition to paying astronomical freight rates, retailers are experiencing delays due to congestion at ports plagued by COVID-19 infections. At the Port of Yantian, part of the world’s third-largest busiest gateway, operations dropped to 30% capacity, creating shipping backlogs reportedly worse than those caused by the Suez Canal blockage. Although Yantian has resumed full operations, it could take up to a month to work through the backlog of inbound ships and outbound containers that have piled up around the gateway. Companies doing business out of Southern China are advised to add at least two weeks of transit time to account for delays and to expect rising freight rates.
COVID-19 infections also are breaking out in places like Taiwan, Malaysia, Thailand and Bangladesh, worsening the global chip shortage and prompting new lockdowns and tightened border controls. As overseas infection rates delay manufacturing and shipping, companies are requiring faster shipping and spending more on expedited freight services.
“The disruption issues are leading to significant additional costs for businesses and delays in getting products to consumers,” said Jonathan Gold, the National Retail Federation’s vice president for supply chain and customs policy. “Most of these costs are not being passed to the consumer given the current economy, further impacting the economic recovery of retailers both large and small.”
Due to overseas delays and crunched ocean capacity, some shippers are turning to air freight, the faster but more expensive alternative. According to the International Air Transport Association (IATA), worldwide air cargo demand was up 12% in April compared to April 2019 and saw a 7.8% gain in demand from March to April. Air cargo volume was up 41% year over year in May.
With soaring demand and air freight capacity still below pre-pandemic levels, rates from Hong Kong to the U.S. have been elevated, reaching $8.07 per kilogram June 7. While this is down from the mid-May peak of $9.50 per kilogram, it is up 127% compared to 2019.
The rebounding U.S. economy has put a strain on trucking and rail networks that is not likely to be alleviated any time soon. The Wall Street Journal reports that while trucking capacity is expected to grow 3 to 3.5% this year, truckload volumes are expected to increase by 8 to 12% (limiting new truck production is the global semiconductor shortage). Operators told the WSJ that the shortfall could deepen if cargo volumes remain high before the busy holiday shipping peak.
Figures from DAT show that in May, spot load posts were up 290% year over year, and truck postings were down nearly 15%. Load-to-truck ratios, which indicate the balance between spot market demand and capacity, increased nearly 220% year over year for vans, 674% for flatbeds and 324% for reefers, causing rates to rise.
Meanwhile, strong demand for rail has started to create congestion issues, driving more importers to transload and putting greater pressure on trucking companies already “drowning in freight.”
On Friday, June 11, FedEx Freight notified about 1,400 less-than-truckload (LTL) shippers that it would stop picking up their goods starting the following Monday to avoid backlogs and maintain service levels amid tight capacity. The measure was met with backlash, and a FedEx official confirmed a week later that this embargo would be relaxed and the company would be more precise about which accounts to cut service to.
Additionally, citing high volumes and limited capacity, FedEx Freight announced it would increase three peak surcharges on Express and Ground shipments, which went into effect June 21.
LTL and parcel networks have been overwhelmed in large part due to the influx of ecommerce-related freight. Although ecommerce gains have eased slightly since stores reopened, volumes remain strong and are expected to stay that way as consumers, now accustomed to doing even their grocery shopping online, stick with purchasing behaviors adopted during the pandemic. As a result, logistics operators and retailers alike are rethinking their long-term supply chain strategies and investing in information technology and automation to speed up the flow of goods.
The growth of ecommerce is driving up demand for warehouse space, especially close to big population centers—but industrial-zoned land in these areas is in short supply, forcing up rent prices.
While some retailers have considered converting their shuttered retail properties into logistics facilities, Prologis Research says doing so will be difficult for reasons including permitting issues, physical limitations (spaces are too small), zoning restrictions and community opposition.
A report from CBRE notes that the U.S. will need to add 330 million square feet of warehouse space dedicated to online fulfillment by 2025 to keep pace with the uptick in ecommerce sales. But building new space will be expensive; CBRE reports that construction costs have increased 25% since December.
New value-added tax (VAT) rules designed to simplify ecommerce in the European Union (EU) are in effect as of July 1. The three main VAT changes are:
For more information about these changes and how they might affect your business, please contact your Visible SCM representative.
Food sector suppliers are scrambling to keep up as demand returns for meals at restaurants and venues across the U.S. Deliveries of items that usually arrive on predictable schedules have been more erratic due to food supply chain disruptions such as raw material shortages, reduced labor and tight transportation capacity.
Mark Allen, chief executive of the International Foodservice Distributors Association, told The Wall Street Journal that the market roaring back to life “has been, in many ways, as difficult as the shutdown,” he said. “Everybody is trying to turn it on immediately and the capacity might not be there.”
Supply chain disruptions have delayed shipments of overseas food products and held up delivery of corrugated cardboard and other packaging materials, like bottles for salad dressing. Even Starbucks is reportedly running short of basics like cups and coffee syrups as stores return to full operations.
Allen said the lack of available workers could be the biggest strain on the sector, the impact of which is being felt across production facilities, transportation companies and distribution centers.
While many of us in the United States are becoming vaccinated and starting to feel a sense of being out of the woods, it’s important to keep in mind that COVID-19 infections are still spreading around the world and continue to have a major impact on supply chains. Recent outbreaks in southern China, Southeast Asia and Taiwan threaten to cause supply chain headaches for weeks and months to come.
These challenges can be especially hard on small and midsized shippers that may be less experienced than larger companies with building contingency plans and finding alternative solutions. That’s why it is essential to have a supply chain partner that can help you navigate capacity challenges, assist with creative route planning and provide the visibility you need to manage your business.
Visible elevates its clients’ brands by helping them deliver the best customer experience possible while minimizing supply chain headaches and costs. We accomplish this by:
With capacity constraints expected to continue into the fourth quarter and peak season hurtling towards us, now is the time to partner with a 3PL that can help you overcome industry challenges and deliver a positive experience to you and your customers. To learn more about how Visible can help your business, fill out our contact form or give us a call at 877.728.5328.