Retail Brands Bracing For Second 'Shippageddon' - Episode 205

DESCRIPTION

“Shippageddon” first entered the retail industry lexicon in late 2020, describing a conflation of global supply chain issues that led many brands and retailers to be under-stocked or otherwise unable to fulfill customer demand for purchases last year. A year later, many of those issues have not been resolved, and there are new hazards to deal with. Retail brands are preparing for round two of Shippageddon.

The term Shippageddon was first coined in late 2020 on an episode of the retail podcast The Jason And Scot Show: ”We were talking about the likely e-commerce peak we expected from the holiday, on top of the e-commerce peak we were already seeing due to Covid-19, and we felt like retailers were likely to run into shipping capacity issues,” said the hosts of the show.

And the alarm that retail experts sounded did in fact bear out. Shoppers were indeed met with stock-outs, longer delivery timelines from all carriers, and less overall discounting ahead of the holidays. But the outlook doesn’t look much better for 2021.

Make sure to tune in to find out more!

“Despite the efforts, a jammed-up global supply chain is a tough problem to fix.”

— Kiri Masters

KEY TAKEAWAYS

In 2020, Shippageddon was driven by several factors:
1. Capacity problems with last-mile delivery carriers. All major carriers implemented shipping quotas. Many turned away new clients to keep a lid on demand.
2. Amazon Prime Day is delayed till Q4 of 2021, instead of the usual mid-year event, shifting more order volume into an already tight schedule.
3. Low freight capacity for retailers and brands to restock.
4. Increased demand for eCommerce that the entire fulfillment system was generally not ready for.
5. The price of shipping containers has skyrocketed in 2021, along with transit times. Mike Beckham, CEO of home products brand Simple Modern, posted an analysis on Twitter showing how dramatically the company’s costs and transit times have increased from Q3 2019 to Q3 2021: an increase of 122% of price per shipping container and a 105% increase in transit time.
6. Salesforce predicts that U.S. companies will spend $163B more on ocean freight in the second half of 2021 than they did in the second half of 2020 for these exact reasons, according to Rob Garf, Vice President and General Manager of Retail at Salesforce.
7. UPS says that delivery demand during the 2021 peak season will exceed capacity by 5 million packages per day, pointing at a major discrepancy between supply and demand for online shopping capacity.
8. Brands and retailers will also face peak-season rate hikes from the USPS which (if granted) will be in force from October 3rd to December 26 this year. This is in addition to the permanent price increases for First-Class mail and packages which came into effect on August 29.
9. In 2020, many of my clients at Bobsled Marketing faced lengthy delays to get their inventory placed in Amazon warehouses and available for shoppers to purchase. Whether the brand was a 1st party supplier to Amazon or using the “Fulfillment by Amazon” program as a 3rd party seller, Amazon was often not placing purchase orders, not picking them up, or inbound shipments would take upwards of 3 weeks to unload once it arrived at an Amazon warehouse.
10. This year, Amazon changed its methodology for calculating how much inventory a Seller can have at Amazon. The system uses factors like storage type (standard, oversize, or clothing & footwear), the inventory performance across a sellers’ entire product catalog (an account-wide ‘Inventory Performance Index’), and in some cases, ASIN-level (SKU-level) performance.
11. Some sellers have found that the changing rules have led to inventory storage limitations that have impacted their ability to keep items in stock. I wrote about this in a post for Forbes in May: Amazon Hobbles Merchants’ Prime Day Preparations With Inventory Restrictions
12. To counteract the conflation of negative supply chain factors, companies are investing in infrastructure and adapting their marketing approach.
13. Last week CNBC published a map of Amazon’s air fleet network across the US, showing that as a result of recent expansion, 70% of the U.S. population now lives within 100 miles of an Amazon Air airport.
14. UPS is adding capacity ahead of peak season, including 2 million square feet of additional sorting space and more cargo aircraft.
15. Brands and retailers are increasing their prices to counteract increased costs in the supply chain. Salesforce’s Q2 Shopping Index indicates the average selling price in the retail sector rose 11 percent year-over-year in the same time period.
16. Salesforce also found that average discount rates dropped to 17% in Q2 2021 compared to 20% in Q2 2020 as limited inventory and sustained consumer demand limited markdowns.
17. Some retailers like online styling service Stitch Fix are diversifying their mix of parcel carriers, to counteract the issues the company faced last year with shipping delays and unexpected costs from higher carrier rates and surcharges.
18. A jammed-up global supply chain is a tough problem to fix. The Suez shipping canal fiasco we witnessed in March 2021 helped to illustrate just how fragile the global supply chain can be
It will be another year of simply muddling through the fourth quarter of 2021 for many companies.