Ocean Freight, Port Congestion, & Holiday Success in Spite of It All

Index:

What’s Happening in the Ocean Freight Industry?

How Ocean Freight Disruptions Affect SMB’s

Tips for Working with Limited Holiday Inventory

Final Mile Delivery Strategy

Building a Resilient Supply Chain

What’s Happening in the Ocean Freight Industry?

As we head into a second pandemic holiday season, merchants may still be reeling from last year’s “unprecedented” peak. This year’s challenges are no simpler than last, and the symptoms are essentially the same: limited supply, high consumer demand, greater emphasis on ecommerce and direct-to-consumer sales channels. The root cause, however, is different.

2020’s supply chain challenges started at the manufacturing level. COVID-19 shutdowns in China halted production, and continued labor shortages made it difficult for manufacturers to catch up. Air cargo capacity was at record lows, and merchants struggled to get inventory in time for holiday sales.

This year, the major disruption is port congestion and elevated costs of ocean freight, which is ultimately leading to the same end result: a lack of inventory. We surveyed merchants across all retail sectors, and the results showed that most merchants tried to get ahead of their holiday ordering this year: 

• By August, 63% had already ordered their holiday inventory. 
• 44% indicated that they ordered more inventory than usual this year.
• Even so, 46% of merchants are concerned about running out of inventory this year.

The two main contributing factors to merchants’ inventory concerns this year are:

1. The rising cost of ocean freight. 

Shipping prices between China and LA have jumped 500% YoY, and 7% of the merchants we surveyed said they were holding off on ordering their holiday inventory waiting to see if freight costs would level off. 

2. Historic levels of congestion at the Port of LA.

Even merchants who ordered their inventory early may have containers adrift or at anchor waiting to berth. Then, once their container is off-loaded, they’re facing chassis and driver shortages that could leave their inventory sitting at the port for another 16 days.

How Ocean Freight Disruptions Affect SMB’s

These supply chain challenges weigh more heavily on SMB’s who may not have the same negotiating power as major retailers shipping full ship-loads of cargo and consequently offering much more attractive rates to ocean freight forwarders. 

Most SMB’s are likely concerned with the amount of capital they have tied up in their inventory. For SMB’s in particular, inventory is often their greatest capital investment, and seasonal inventory may be at risk of aging into obsolescence if it is not sold during the holidays. Merchants who find themselves unable to negotiate for ocean freight or inter-modal transportation to get their inventory out of the ports should align themselves with a fulfillment partner who can provide valuable connections and negotiating power they wouldn’t have access to on their own.

Ware2Go is helping its SMB merchants by partnering with transloading service providers to take ocean freight containers straight from the port to nearby transloading facilities. At these facilities, containers are broken down and palletized so they can be placed on FTL trucks and shipped directly to our fulfillment centers. 

This solution is reducing time in transit (TNT) by an average of 2 weeks for our merchants by bypassing the rail lines, which are also facing record levels of congestion and slowing down lead times even further. Once our merchants’ inventory arrives on the dock at one of our 30+ warehouses, it’s guaranteed to be inbounded and on the shelf, ready to sell within 48 hours. This quick turnaround is essential to helping merchants recover their capital investments quickly. It also protects them against possible missed sales as peak season starts earlier and earlier each year. 

Like last year, shoppers are planning to do much of their holiday shopping online. And shoppers seem to be heeding advice from industry experts to start that shopping now. 25% of shoppers report that they plan to start holiday shopping by the end of September, and 50% plan to start before Halloween. Similarly, our merchant survey data revealed that 44% of merchants started seeing peak levels of order volume as early as August this year. That means merchants need to prioritize lowering their TNT into fulfillment centers so they can start holiday promotions as early as possible.

How to Succeed with Limited Inventory

For those merchants concerned about having enough inventory to meet demand, maintaining margins will be key to having a profitable holiday season in spite of inventory constraints. The key to preserving margins will be:

• Using fast shipping promises to convert sales rather than product discounts. Our consumer survey data showed that 69% of consumers are more likely to click on an ad that mentions free, 2-day shipping. Fast shipping promises are powerful conversion tools, and merchants who have optimized their fulfillment for affordable 1- to 2-day ground shipments can use shipping guarantees to attract customers at the top of the funnel without damaging their bottom line.
• Advertising aggressively early in the season. Peak season is starting earlier and earlier each year. Shoppers learned their lesson last year and aren’t likely to risk receiving gifts late this year. Merchants should get in front of their customers early to make back their inventory investments quickly and ensure they have enough time to deliver all orders before the holidays. 
• Selling across multiple sales channels. Today’s shoppers are always connected and are virtually always shopping. Subscriptions to new marketplaces like Walmart+ are continually growing, but consumers are not loyal to any one channel. In fact, 86% of Walmart+ subscribers also have an Amazon Prime subscription. Limiting a business to a single channel limits its reach. Branching out to multiple channels allows merchants to test into new markets to find their most profitable channels and their best-fit customers.
• Ring-fencing their inventory to feed their most profitable sales channels. It’s no secret that some sales channels are more valuable than others. If merchants expose all of their inventory on a low-margin marketplace that hides consumer data from them, for example, they may sell through it quickly and leave no inventory for their direct-to-consumer ecommerce channel which tends to yield higher margins and stronger customer loyalty.
• Distributing inventory to improve service levels to their best customers. We’ve established that fast shipping promises are powerful conversion tools at the top of the sales funnel. Our consumer survey data also showed that fast shipping increases customer loyalty. A full 79% of respondents said they are likely to make a repeat purchase from a brand after receiving fast shipping. Knowing where their customers are located and stocking inventory closest to them will allow merchants to deliver on fast shipping promises using the most economical shipping methods.

 Find out where you best customers are with a free network analysis from NetworkVu.

Competing Down to the Final Mile

Peak surcharges from all major carriers will be unavoidable this year. Paired with elevated ocean freight costs and increased labor and storage rates, merchants have significant capital tied up in supply chain expenses this year. In order to maintain the profitability of holiday sales, merchants will need to find supply chain savings wherever possible, and strategic planning for fulfillment and final mile delivery will be an important lever for merchants this year.

Our merchant survey data revealed that 77% of merchants have been affected by elevated freight costs this year. 12% of those merchants plan to absorb the cost, 31% have increased prices for end consumers, and 9% have stopped offering free shipping.

However, our consumer survey findings confirm that consumers value fast, free shipping, and merchants can’t compete without it. In fact 75% of respondents to our consumer survey said they are more likely to purchase from a brand that offers fast/free shipping. So, how can merchants meet growing consumer expectations for 1- to 2-day delivery without further eroding margins in a year marked by increased supply chain and fulfillment costs? 

Ware2Go’s solution is a scalable technology solution that uses machine learning and merchants’ own data to determine where their customers are located. With a custom network analysis, merchants can build a network optimized for 1- to 2-day ground shipping to their best customers. This is accomplished by:

1. Spreading inventory across multiple warehouses strategically located in geographic centers of demand. This lowers time in transit (TNT) so merchants can meet customer expectations for 1- to 2-day delivery without relying on costly solutions like next-day air.
2. Aggregating inventory of multiple SMB’s to negotiate for top tier rates and SLA’s. Especially this year, when many SMB’s may be working with limited inventory, merchants may not feel as though they have enough product to stock multiple warehouse locations. Ware2Go’s model of on-demand warehousing aggregates the volume of multiple merchants for greater negotiating power with large warehouses and 3PL’s for better rates and stronger service levels.

Prioritizing Resilience in the Supply Chain

If the ongoing supply chain challenges of the past year and half have taught merchants anything, it’s that flexibility and resilience are ultimately the most important qualities of a supply chain solution. If, like last year, peak levels of demand persist throughout the year, merchants will need an end-to-end supply solution in place that gives them negotiating power through strong partnerships and flexibility to pivot in the face of market disruptions through scalable technology. 

Looking for a flexible end-to-end supply chain solution? Reach out to one of our in-house experts today.