'Panic In The Market' As The Logistics Holiday Season Is Choked By Delays

Mired in delays, shortages and cost overruns for months now, the global supply chain is vexing retailers preparing for the holiday shopping season. Yet while none of those conditions are expected to change anytime soon, there is some reason for optimism — but little margin for error.

Since the delta variant began sweeping across the globe, every stage of the supply chain from factories to customers' doorsteps has been met with setbacks. Though the biggest retailers have already brought the bulk of their inventory for the holiday season stateside, the delays and shortages they had to navigate likely had an impact on what will be stocked in the coming months, multiple experts told Bisnow.

The majority of companies lack the funds or influence to jump the line, which has caused multi-week delays in fits and starts for over a year now. Some retailers didn't get their spring merchandise in time for seasonal sales, and had to move their late-arriving product at discounted rates, Deloitte Vice Chair and U.S. Leader for Retail and Distribution Rod Sides said. If that happens again, missing the holiday season could be much more damaging.

“There are companies out there that are still waiting for goods they intend to sell during the holidays, which is why there’s so much panic in the market," said Rob Caucci, co-founder and co-CEO of logistics platform Fillogic. We’re getting to the point where folks are realizing, ‘Oh my God, I don’t think I’m going to have the stuff in time.’”

Major retailers, both brick-and-mortar and digital, made plans for what products they will push during the holidays earlier than normal, Sides said. 

"This year, the big question [for retailers] is, 'Did I get the mix of products right?'" Sides said. “Holiday retail uses models and histories to see what’s trending upward. Last year was such an outlier that a lot of the industry is flying blind, and they're sort of holding their breath a little bit on whether they got it right.”

The resultant overbuying in anticipation of a chaotic autumn in logistics compounded the problem, backing up shipping lanes further and driving prices on containers and trucks higher. While plenty of companies are still waiting on their products to make their way through choked ports and rail, few if any will be able to make adjustments if they get early indicators that their initial predictions were off, Sides and Caucci said.

Part of the motivation that giants like Amazon, Walmart and Target have had in supercharging expansion of their distribution center network in the U.S. is to build up enough storage capacity domestically to weather more delays in getting products from factories, Caucci said.

As it is, industrial vacancy is at historic lows in markets with major international ports, and those warehouses are "stuffed to the rafters," Caucci said. Come holiday season, UPS projects that 5 million packages per day will go undelivered due to lack of capacity, CEO Carol Tomé said on the company's second-quarter earnings call in July.

That estimate may depend on distribution centers being able to hit their seasonal hiring targets, which look to break records this year. Amazon is looking to hire 125,000 for its holiday surge; UPS is posting roughly 100,000 jobs; Kohl's is targeting 90,000 new hires, including at its retail locations; and Walmart is seeking 20,000.

Caucci doesn't anticipate there being a meaningful shortfall for seasonal warehouse jobs, speculating that employers will raise wages as necessary. But even a temporary dip in labor power, whether in the warehouse or among drivers, would add to what is already expected to be one of the dominant themes of the holiday season: shipping delays, and more specifically, unexpected delays.

In addition to the pressures of the supply-demand imbalance, every link in the supply chain has been delayed by a coronavirus outbreak at some point. In Vietnam, only about 30% to 40% of factories are open due to a public health order mandating that workers be housed and fed on-site in order for a factory to operate, Caucci said.

Positive coronavirus cases at ports in China have shut down activity sporadically over the past few months, and they could do so again at any time. Even if the crucial ports of Los Angeles, Long Beach and Oakland don't shut down in response to a positive test, any reduction in worker numbers could lead to delays.

The most damaging effect of those delays on the supply chain is that they haven't yet been accounted for in the risk management model of logistics companies, said Indy Chakrabarti, chief strategy and marketing officer for supply chain risk management platform Avetta.

“We see [a virus outbreak risk model] emerging as a post-pandemic capability that organizations put in place, but it by and large does not exist today,” Chakrabarti said.

Not being able to fully account for delays ahead of time means that an event entirely outside a retailer's control could cause it to miss a promised delivery window, which has a relatively high correlation with the loss of a customer, Sides said.

“From a loss of business perspective, we find, especially during holidays, on e-commerce, a lot of customers are fairly nimble in terms of moving from one brand to the other when there’s a stock issue,” Sides said.

Consumers are more likely to wait for a product if shipping is free and they are confident in the delivery timeline, Sides said, which will likely cause plenty of online retailers to set earlier holiday ordering deadlines.

Consumers confronted with such uncertainty from their online shopping are more likely to shop in stores, Sides and Caucci agreed. Considering that retailers of all stripes are taking more of a focused approach to their inventory, in-store shopping might be further benefited by giving shoppers the ability to pivot to a different item if their first choice is out of stock.

“My recommendation is for anyone holiday shopping, go to a store," Caucci said. "That’s the most surefire way to have the ability to buy something ... It may not be the perfect product, but it's something.”

Another likely response from retailers to supply chain uncertainty will be a change in how companies conduct holiday sales. The higher cost of shipping might reduce how deeply retailers are willing to discount, and sales events will likely be spread out over longer periods of time to mitigate congestion at distribution centers, Caucci said. All of these adjustments could potentially entice more shoppers to brick-and-mortar stores, which doesn't carry the same fear as it did last year, before vaccines were available to the general population.

That means an opportunity to win back some ground against e-commerce, if only temporarily, is presenting itself for brick-and-mortar stores.

“Let’s say I go in to buy that red dress for my wife, but it’s out of stock, I’m not just walking out of the store [empty-handed]," Sides said. "I'm probably going to go buy something else.”