Freight Delays – What Every Merchant Needs to Know

Freight delays have affected consumers and merchants alike. The supply chain is just that – a chain – and when any one link in that chain is disrupted, the effects are felt all the way down the line.

Last holiday season, after navigating supply chain shortages and endless disruptions caused by the 2020 ecommerce boom, most merchants were prepared for an unusual and tumultuous peak. 

The Supply Chain just hasn’t gotten a break since the beginning of the pandemic. During the historically slow shipping season, businesses rushed to re-stock inventory depleted during COVID-19 shutdowns, worsening already unprecedented freight delays. As time wore on, supply chains were dealt one blow after another, including:

• A spending spike the led to a shortage in shipping containers late last year
• Winter storms disrupting freight transportation throughout the Southeast
• The Ever Given blocking the Suez Canal for nearly a week (Companies like IKEA and Snuggy still have significant amounts of inventory tied up in legal battles with the Egyptian government.)
  
  

After 18 months of disruptions, the state of international freight was shaky at best heading into this holiday shopping season. Reports of ships drifting outside the port of L.A., unable to get into deep enough water to anchor made headlines. Supply chain talk is now mainstream, overheard at holiday parties, on the minds of every consumer, and even canonized by meme culture and popular news parody platforms.

The supply chain is not out of the woods yet, and while this peak holiday season was certainly different than last, it was hardly “back to normal”. Now that the rest of day to day life seems to have settled into some semblance of normalcy, shipping times and inventory availability are still working to catch up to pre-pandemic levels.

Ahead we’ll examine exactly what is behind continued freight delays and how merchants of all sizes can get ahead of disruptions that are projected to continue well into 2022.

2021: Why Are Shipments Still Delayed?

While 2021 has challenged many links of the supply chain, freight delays are often the most misunderstood. The ships lined up outside of our busiest ports are visible from aerial views, giving a compelling concrete image that most viewers immediately understand.

Freight delays, on the other hand, are often harder to visualize. As we mentioned earlier, each link of the supply chain is connected, so we’ll take a closer look at the end to end supply chain to understand why shipments are still being delayed, how freight is specifically affected, and how merchants can circumvent these issues.

Production shortfalls: 

It’s no secret that most American goods are manufactured in China, and China’s zero tolerance COVID policy means that production is regularly interrupted. This first link in the supply chain is pivotal, and when production is held up, every step of the supply chain that follows is behind schedule.

Going into 2022, merchants should consider diversifying their supplier base to eliminate single points of failure. They should also take a deep dive into the profitability of their sales at a SKU level and consider dropping the SKU’s that aren’t moving the needle on their bottom line growth.

Port congestion:

In spite of extended hours of operation at the port of LA and many companies redirecting their freight to smaller ports, ships are still lining up outside of our busiest ports.

To combat this ongoing issue, Merchants of all sizes should consider taking a page from the books of major retailers by redirecting their ocean freight to smaller ports. While it may be considerably more expensive to charter a ship to a secondary port, merchants should weigh the additional cost against the cost of missed sales opportunities.

Dwell time at ports:

Once a vessel has berthed and the container has been offloaded at the port, the ports themselves are overwhelmed with a record number of containers and limited space to maneuver them. In spite of continued improvements since the start of the pandemic, average dwell times at the ports are still twice as long as before the pandemic.

Merchants should look for opportunities to reduce time in transit at any point in their supply chain to make up for increased dwell times. Finding a fulfillment partner with a hub and spoke distribution model will allow them to quickly move inventory into their network, reducing time in transit and freight costs overall.

Want to learn more about how Ware2Go can reduce time in transit? Reach out to one of our fulfillment experts today.

Air freight congestion:

As holiday shipping deadlines approached and inventory levels dropped, many retailers tried to restock one last time to take advantage of last minute holiday sales. With continued delays in ocean freight, many merchants turned to air freight. Although air freight capacity is on the rise with the recent uptick in commercial passenger flights, increased demand is still keeping prices high.

To avoid increased air freight costs, merchants should prioritize demand forecasting so they can place orders far enough in advance to account for extended lead times.

Why Is the Cost of Freight So High?

When we surveyed merchants across all industries this year, 77% of them reported that the rising cost of freight had affected their business. They responded in various ways:

• 31% increased costs for their end consumers
• 18% rerouted freight or renegotiated their rates
• 12% absorbed the cost
• 9% had to stop offering free shipping
  
  

The factors that drove up freight rates are complex and interconnected. They include:

• A truck driver shortage. Demand is high and supply is low. Without enough drivers to operate the vehicles, merchants are competing for limited space on LTL and FTL vehicles.
• A chassis shortage. The steel frames that connect containers to a vehicle to move them over road are in short supply and are tricky to procure.
• A microchip shortage. New vehicles are in short supply due to the microchip shortage that is affecting the car industry as a whole.
• Rising fuel prices. Diesel fuel accounts for around 30% of carriers’ overall operating costs. When fuel prices increase, freight costs will naturally follow.
  
  

When Will Freight Rates and Shipping Go Down?

According to a forecast by Coyote Logistics, freight rates should begin to trend downwards in early 2022 as more capacity is added. Their forecast model shows a steeper decline in spot rates than contract rates, with contract rates decreasing slowly over the following quarters.

Ultimately, nearly two years of supply chain disruptions has proven that supply chain resilience is the only way to succeed in a volatile market. When the next supply chain disruption ultimately comes, the merchants who can quickly pivot and adapt to meet consumer demand will be the most successful.

Looking to build a more resilient supply chain? Reach out to one of our supply chain experts.