The highs and lows of e-commerce shopping and fulfillment in the United States were on full display during the 2013 holiday season. Consumers hoping to avoid the congestion and chaos in brick-and-mortar stores increased their online purchases to US $69.2 billion for the fourth quarter of 2013, up 15.7 percent compared with the same period in 2012, according to U.S. Bureau of the Census figures. That growth in online sales, together with a surge in last-minute orders and an unusually short shopping season, made it difficult for U.S. shippers and the top two parcel carriers, UPS and FedEx, to fulfill e-commerce orders. Consumer outrage over late shipments forced a number of retailers, including Amazon and Kohl's, to respond by offering refunds and other financial concessions to affected customers.
While the events of the 2013 holiday season are now history, the challenges facing retailers and shippers are not over. In the high-growth, constantly changing e-commerce environment, every touch-point—from shopping, to purchasing, to fulfillment—presents an opportunity to either create a truly customer-centric experience or to cause customer dissatisfaction.
Keeping up with the consumer
To succeed in e-commerce fulfillment, retailers must find ways to meet consumers' increasingly high expectations. Online buyers desire a retail experience that combines the simplicity and security of online shopping with the ease and familiarity of in-store interaction. They expect their orders to be delivered within one to two days, and they want free or discounted shipping.
Consumers also demand a flexible store policy that allows for various combinations of purchases and returns, in-store or from home. Increasingly, they expect a unified and personalized shopping experience provided through a retailer's online/mobile app or by a knowledgeable in-store associate.
Developing the capabilities that are necessary to execute a desirable e-commerce strategy will require retailers to reassess and optimize their current services and operations. This will be challenging in an environment where changing consumer preferences continually alter business models. And it will only get harder as omnichannel expectations continue to rise and retailers are pushed to offer additional products and services, both online and in-store.
Innovation despite constraints
Retailers are continuing to innovate in response to market demand, but they're doing so within the bounds of several constraints. The biggest, perhaps, involves shipping capacity. The problems with shipping reliability in 2013, for instance, caused many to wonder whether capacity issues will persist as e-commerce continues to grow. It seems likely that the large retailers will continue to stretch parcel carriers' capacity during peak periods, forcing other retailers to develop alternative strategies. Additionally, recently announced plans by FedEx and UPS to institute volumetric pricing for all ground parcel shipments have major implications for retailers. Volumetric pricing is a response to the increase in e-commerce shipments—the lower ratios of package weight to package dimensions mean less cargo is carried in the same amount of space. Carriers hope that in response to their new rate policies, shippers will optimize their packaging and shipping practices by paying more attention to efficiency and weight.
Meanwhile, Amazon, the largest e-commerce entity in the United States, is rapidly and boldly developing a host of new services that are designed to improve its customers' experiences and give the company greater ownership of its supply chain. To limit its dependence on carriers, for instance, Amazon is developing an in-house fulfillment service that includes a private fleet that will handle some of its same-day and expedited shipments. In addition, it is piloting warehousing and logistics partnerships with manufacturers to reduce the cost and time required to get products to its customers. Amazon is also looking to utilize regional carriers in some areas and the U.S. Postal Service for less populated markets and Sunday deliveries. All of these moves circumvent much of the national footprints of UPS and FedEx.
While Amazon may have price and distribution advantages in online commerce, traditional brick-and-mortar retailers are seeking a competitive edge by developing capabilities that leverage their storefronts and online presence to create truly omnichannel experiences. In the white paper Are You Ready? How to Create an Always-On, Always-Open Shopping Experience, Capgemini Consulting identified four key capabilities that retailers must possess if they are to effectively compete in this increasingly important area:
Inventory visibility—systems and processes to accurately track and manage inventory in their networks
Web-ready products—improved information about products and services sold online, and reduced time and labor required for retailers to bring items to market
Predictive customer analytics—information utilized to anticipate customers' needs based on past behaviors, in an effort to enhance the continuity of the omnichannel experience
Fulfillment strategy—revision of processes, modernization of technologies, and updating of physical infrastructure to support the omnichannel experience
Retailers that are investing in their supply chains to support these four capabilities are making it possible to provide omnichannel experiences for their customers. With these capabilities in place, they are achieving increased sales through alternate channels, improvements in productivity and inventory accuracy, reduced shrinkage, and faster fulfillment of customer demand.
The new e-commerce landscape
A new e-commerce landscape is emerging as a result of the trends and developments mentioned above. Within this environment, retailers, online leaders, shipping leaders, regional carriers, and the U.S. Postal Service can all succeed by occupying different niches (summarized in Figure 1).
First, retailers should focus on developing omnichannel capabilities as a means of competing against Amazon, which has advantages in price, fulfillment capability, and speed. Meanwhile, online leaders, such as Amazon and Wal-Mart, will continue to leverage their size to invest in capabilities that allow them to lead the market on price and speed. On the shipping side, leaders such as FedEx and UPS should continue to invest in infrastructure and e-commerce-specific capabilities. If, however, Amazon develops transportation and delivery capability for itself, it will likely look to offer that as a service and could become a major competitor to the parcel carriers. Regional carriers and logistics service providers should consider partnerships with larger retailers and online leaders, build capabilities in niche markets, and examine methods for shipping products with specialized shipping needs (such as beverages, for example). And finally, the U.S. Postal Service should try to capitalize on its "last mile" scale and capability, positioning itself as an asset that can support other carriers and retailers that want to increase their delivery reach.
Companies seeking to navigate this emerging e-commerce landscape would be wise to determine whether or not their existing facilities can support the increasing consumer demand for omnichannel fulfillment. They should also understand what supplemental warehousing and fulfillment capacity and capabilities will be needed, and how retail models that allow for in-store pickup and return of online orders will need to be supported by warehousing and fulfillment operations. Both retailers and carriers should evaluate increased partnership with 3PL providers and other supply chain specialists to ensure they possess the capabilities required to handle expedited fulfillment and satisfy increasingly complex customer demands. Evaluating these areas will allow retailers and carriers to determine their strategic options, current operational readiness, and whether investment in new infrastructure will be needed to support their e-commerce business.
Residents and businesses along the Florida panhandle today are keeping a close eye on Tropical Storm Helene, which is forecasted to strengthen into a major hurricane by the time it strikes the northeast Gulf Coast on Thursday.
Hurricane and storm surge watches are already in effect for that area, which could see heavy rain and flash flooding across portions of Florida, the Southeast U.S., Southern Appalachians, and the Tennessee Valley, according to predictions from the National Hurricane Center.
The storm would come a month after Hurricane Debby delivered drenching rainfall for days over Florida in August and after Hurricane Beryl hit Houston in July, knocking out power across the region.
As Helene continues to gather strength from the warm waters of the Gulf of Mexico, experts are warning that the storm’s impacts could include the Port of New Orleans, agricultural operations throughout the Southeast, and additional citrus and fruit farming business in Florida, according to a report from Everstream Analytics’ chief meteorologist Jon Davis.
From a supply chain perspective, additional disruptions could include rail and road transportation stoppages, closures of interstate highways I-10 and I-75, widespread power outages, and shutdowns of offshore energy operations in the eastern portion of the Gulf of Mexico, Davis said.
As the third potential hurricane to hit the area within as many months, the arrival of Helene shows that extreme weather events aren’t just anomalies, but rather they’re the new normal for shipping companies and port authorities, according to Frank Kenney, Director of Industry Strategy at the technology consulting firm Cleo.
To cope with that constant battering, businesses need to adopt a new mindset, he said. “The only way to keep supply chains running smoothly is to build resilience into every aspect of operations. This starts with diversifying logistics strategies. If a shipper is dependent on a single route or port, they’re setting themself up for trouble. Instead, it’s crucial to have multiple backup routes and options ready to deploy when the unexpected happens,” Kenney said.
Following that strategy, inland ports such as Savannah and Macon, Georgia, will likely gain importance in coming years since their locations offer proximity to ocean ports while also providing access to major highways and some protection from coastal flooding. “In short, the storm isn’t going away, but by embracing diversification, leveraging technology, and ensuring supply chain visibility, U.S. ports and shipping companies can stay ahead of the curve. The companies that prepare for these challenges now will be the ones that continue to thrive, no matter how extreme weather events rock the boat," Kenney said.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”