Claire Webb from Advanced Supply Chain Group looks at why playing a waiting game won’t help retailers beat soaring shipping costs.
Many retailers are looking to protect margins against rapidly rising shipping costs. A favoured way for trying to achieve this is to delay the placement of orders, with the assumption transportation prices will soon peak and rates will start to drop. This is a high-risk gamble with little prospect of paying off and leaves companies facing costly out-of-stock situations.
Cost of bottlenecks
Disruption caused by COVID has led to global supply chain bottlenecks. Ports have either closed or suffered labour shortages due to outbreaks of the virus, which causes delays and congestion. Supply chains have also had to contend with the release of pent-up demand. This places intense pressure on ports and shipping routes that are already dealing with a backlog of containers from lockdowns. Bottlenecks were also made worse by the Suez Canal blockage.
The factors have triggered a long-running period of disruption and caused shipping costs to escalate. Maritime consultants Drewry report that shipping prices from Asia to the UK have increased by around 500% from June 2020 to July this year.
Playing the waiting game
To avoid inflated transportation costs, some retailers are trading on a buffer of existing stock and delaying imports to replenish inventories. Businesses have found that lower periods of demand during the pandemic have meant they’ve still got some goods to sell. Other retailers concerned by supply chain uncertainty have over-ordered previously and stockpiled, which creates less urgency for them now to top-up warehouses.
There are also businesses that are simply pushing back their typical order dates. Many retailers would usually already have containers full of fashion, consumer electronics and gifts on the way to the UK in readiness for the busy Black Friday and Christmas periods. These orders have been put on hold as companies wait for shipping costs to drop.
After such a sustained period of rising prices, there’s an assumption that shipping costs will be close to their peak, which means a fall in rates isn’t far off. This belief is reinforced by the view that progress is being made in the fight against COVID. Vaccines are being rolled out and economies are adapting to continue trading, rather than shutting down.
Although these circumstances bear some truth, they aren’t indicators that shipping prices will correct to closer to pre-pandemic levels. If anything, transportation prices are likely to continue to rise in the coming months and playing a waiting game will prove futile and even damaging for British retailers.
Mitigating costs
Realistically, shipping costs are likely to rise further as we are approaching the late summer peak. Freight demand will be high as businesses get ready to fill shelves and warehouses for Christmas. This increases competition for shipping capacity and prices could rise further due to uncertainty of COVID outbreaks during the Autumn and Winter.
Waiting for transportation costs to drop simply isn’t an option for businesses. It’s a risky gamble that could leave them short on goods when consumers are keen to spend the money they’ve saved during lockdown.
This, however, doesn’t mean that retailers can’t take steps to mitigate shipping costs to protect their margins and avoid inflating selling prices. With the right supply chain data, for example, it’s possible to pinpoint quieter ports and to direct shipments towards these where unloading and processing costs may be cheaper. Containers can then continue a shorter last leg of their route via a lower cost mode of transportation.
Similarly, depending on the goods being shipped, there might be options to optimise the capacity of containers by changing existing freight processes. We’ve worked with clothing importers to ship garments flat packed, rather than them being hung in containers. This can help boost the number of clothes shipped per container by around 50% – 65%, reducing the cost per item shipped. The clothes are then processed closer to the point of sale, instead of at the origin of export.
To identify these savings, retailers need a control tower view of their entire supply chain. This needs to be based on accurate, constantly updating information that tracks inventory management across all channels and is agile enough to calculate and convert ever-changing shipping tariffs. Utilising such rich data can enable companies to quickly make informed decisions that drives efficiencies and proves much more profitable than missing sales because of delayed shipments and out-of-stock situations.
