News digest. 25 Nov
Companies have already decided not to wait for the peak season to hit and dived into hyperdrived sales before supply chain snags cut off the flow of merchandise. A way to cover increased operating costs.
This Thanksgiving not only a turkey will be subject to share but also elevated costs that retailers are facing due to increased rent fees, labor expenses, and decreased stocks. Thus, industry giants are on the run to adjust their strategies and test the waters before the Christmas rush hits the stores by regulating FBA fulfillment fees to partially offset the higher permanent operating costs. On average, the increase will be by 5.2%. Sales in November and December are predicted to grow between 8.5% and 10.5% from last year. In addition, such companies as Amazon are raising monthly off-peak storage fees together with removal and disposal fees, and introducing a tiered rate structure for long-term storage and dim-wight pricing for large standard-size products. No one is Immune to the persisting pressure. However, the first signs on the US market indicate potential positive changes next year as inventory levels have re-bound to the pre-pandemic levels. If the consumer demand abates, this dynamic will continue, although the move to higher levels of stock held in by wholesalers brings its own set of problems. There is still no space in the warehouses that is slowing the movement of goods and containers through the supply chain. As the result, the industry gets stuck in congestion. Companies continue altering their services from North America, Latin America, and the Caribbean. Australia is under a huge risk of becoming a “no go” area as well since it is becoming more difficult to book cargo slots and container detention charges keep mounting. Cyber-attacks at container deport operators additionally disrupt the situation. In the meantime, some become creative when addressing equipment shortages. South Korea teams up with a factory in Vietnam to start its own container manufacturing process. The location allows cutting costs related to land and labor expenses.
The global character of the crisis makes the recovery more complicated. Despite the slight aforementioned improvements, the freight costs will remain exceptionally high and consequently drive an increase in prices. Experts predict that on a global scale import price levels could jump by 11%. Recent data proves that the main problem in disrupted schedule reliability is poor service rather than constantly blamed high spot rates. Another tumbling stone is whether shippers are at all willing to pay a premium for better schedule reliability.
An additional overview of the current trends and their effects will be delivered by the FMC shortly to help the flow of cargo through the international supply chain. Transparent data sharing will be the next initiative to be implemented. Another initiative to address the logjam at the ports has sparked the talks in the State – the proposal to launch a new line between the US and China that will use 53-foot containers. While it is still in the talks, Amazon reportedly has backed it. The transpacific direction will play a key role in the future recovery. Currently, the freight transit time remains extremely high. For example, a 32-day transit time is still 68% higher than it was in May 2021 and double the usual transit time. It means that delays are happening at every step, even when containers are unloaded. Apart from transit, delays concern berthing and dwell time. To illustrate the chaos, there are currently around 78 container ships in the queue outside San Pedro Bay. The best way for the companies to avoid continuous delay so far has been the approach to have their own terminal facilities at congested ports.
Alternatively, they can follow the UK’s example that illustrates how the country has shifted its focus at the development of the freeports eco-systems. The new steps aim to attract businesses, thus anyone willing to set up a new manufacturing, clean energy or logistics business at the Thames Freeport will benefit from the access to tangible economic benefits which are available across the main tax sites. This alone will allow companies to reduce ownership costs by 50% - a miracle in our times when the prices keep rising.
When the marine sector fails, it is usually the rail that is put on the pedestal of the hopes and dreams of the future. It has seemed like all leaders have been calling for more investments in railway infrastructure, however, the new studyhas shown that the reality is far from what the media has painted. There is no sign of a modal shift to rail and it is the road sector that is a current priority, at least for the EU. Between 2007 and 2020 82.5 billion went to roads and motorways in comparison to 62 billion euros for rail. The numbers speak for themselves. At the same time, MSC sees inland transportation as a big opportunity and plans to provide a new overland service that will ensure a shorter journey for cargo bound for Saudi Arabia and other Gulf Cooperation Council countries. It will be of particular interest to those shippers that deal with refrigerated cargo. The company also does not slow down on expanding its fleet targeting the second-hand market. The advantage of this strategy is simple: instead of waiting for years for the vessels to be built, MSC will receive them in a much shorter time. Another four ships will join the marine giant’s forces.
