Online Marketplace customers now have especially demanding requirements in terms of choice and delivery speed, which means you need to be able to promise the right assortment at the right time, every time. And the COVID crisis has made it very difficult to achieve these objectives as the demand for transportation and warehousing skyrockets. In this article, we are going to explore these issues, and looks at some of the specific e-Commerce solutions that logistics providers are putting in place to help their customers survive – and even thrive.
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Supply and Demand: it’s a new and volatile world
Our volatile supply and demand environment…thanks COVID.
The online marketplace business continues to be severely impacted by COVID-19 and extreme weather conditions, as well as international sanitary and trade regulations – all of which are contributing to disruption in global supply chains. The result is the unpredictable supply of raw materials, components and finished goods across all industry verticals.
The global chip crisis serves as a good example of current demand and supply issues. This crisis impacts more than 169 industries and has led to major product shortages for video cards, video game consoles, cars and other electrical devices. Taiwan – the global leader in chip production – have experienced drought levels not seen in over 50 years, reducing the amount of ultra-pure water that chip manufacturers need for cleaning during the production process. It couldn’t have come at a worse time, as demand for consumer electronics and other related products rose dramatically among a global population driven online by the pandemic.
Ocean and Air freight disruptions
And unless you’ve been living under a rock lately, you will be all too familiar with the way in which COVID-19 locked down the world. The resulting country shutdowns resulted in massive closures of manufacturing sites, stores, ports and air terminals. This obviously led to congestion and shipment delays.
Between 70 and 80 % percent of goods are traditionally transported by ocean freight. However, the pandemic has led to historically low service levels on ocean freight. Now, we see delays of 7 days per vessel, compounded by service cancellations and other interruptions. About 35% of global trade is transported by Air each year, – 60% of which (in total tonnage) is shipped on passenger aircraft. In 2020, however, the COVID-19 forced Air carriers to stop passenger flights, throwing a wrench into global supply chains. In fact, Air cargo demand decreased by 10.6% in 2020 compared to 2019, according to IATA. And capacity (measured in available cargo tonne-kilometres, or ACTKs), shrank by 23.3% in 2020. This caused load factors to increase by 7.7%.
Even though the effects of the pandemic on our daily lives are beginning to lessen, today’s freight market is still volatile in terms of service, accompanied by historically high prices. Ocean freight container rates, for example, are 8 times higher than pre-pandemic rates. Air freight rates have also increased significantly, and IATA states that rates to North America from Hong Kong rose by 24% this year – after more than doubling in 2020.
Asia deals with unprecedented demand
56% of global container volumes originate in Asia – a region that also contains 9 of the 10 busiest ports in the world. The three top sea trade routes originate from Asia: Asia-to-Asia; Asia-to-North America; and Asia-to-Europe. This amounts to 170 million TEUs in global transport, or 70% of the goods transported across the globe each year.
Logistics providers have scrambled to find solutions to this unstable Ocean freight situation. Some developed contingency plans through China-to-Europe Rail services, which increased by an estimated 10% to 20% over 2020. However, this increased demand for Rail also created capacity shortfalls, operational delays and – as in all areas of commerce – pandemic-related staff shortages.
Unfortunately, this volatile situation means that unforeseen incidents can result in even larger problems to global supply chains. The Suez Canal incident compounded delays as the grounded Ever Given container ship created a tail back of over 400 ships.
An increasingly bumpy Road
And let’s not forget about Brexit, which has partnered with the pandemic to result in EU Road freight driver shortages and a resulting negative impact on deliveries. The publication Transport Intelligence recently reported that the combination of the pandemic, Brexit and ongoing structural issues resulted in a shortfall of 76,000 drivers in the UK market. Across the EU, this number is estimated to be approximately 400,000.
Warehousing takes a hit
Health & Safety rules are an important part of any business operation. And health comes first. However, the pandemic’s effect in terms of lockdowns, staff shortages, social distancing measures and a variety of new legislation and rules have resulted in delays in warehousing operations resulting in productivity losses in fulfilment operations, reduced processing capacity and additional demand for warehouse real estate.
In fact, the 2021 UKWA report describes Prologis research showing that for every extra £1bn spent online, an extra 775,000 square feet in UK warehouse space is needed to meet rising demand. In fact, a 2020 paper from Savills suggests that for every additional £1bn invested in manufacturing processes, an extra 175,000 square feet of warehouse space is needed in the wider supply chain. The situation is the same across Europe – logistics providers are trying to expand their real estate portfolio to deal with increased online sales and e-Commerce fulfilment activities. At less than 5%, vacancy rates remain low, which has had a knock-on effect in terms of increased rents (over 3%).
e-Commerce: accelerated growth beyond all expectations
While perhaps not surprising given the pandemic’s influence, e-Commerce’s accelerated growth has forced companies across the globe to ramp up their online activities at a speed not entirely envisioned in the pre-pandemic world. In 2020, sales in cross-border e-Commerce grew by 82% year-on-year according to eShopWorld. e-Commerce’s share of global retail trade rose from 14% in 2019 to about 17% by 2020. During the same period, China’s online share of retail sales rose from 19.4% to 24.6%. In the US, McKinsey made the startling statement that e-Commerce penetration accelerated by 10 years’ worth in 90 days in Q1 2020 alone. GlobalData also reports that 9 of the top 10 global e-Commerce companies saw double-digit revenue growth in 2020. And in 2021, Bazaarvoice stated that TikTok had seen a 553% growth in shopping on its app since the start of the pandemic.
This trend is here to stay, especially as consumers take advantage of the ever more popular option of ordering online to collect in-store – an option that will certainly continue once COVID restrictions lift. In fact, a survey reported by Mood Media indicated that one-third of US respondents now prefer curb side pick-up, and will continue to use this approach into the future. A similar trend is also occurring in Europe.
What are logistics players doing to help?
Enhancing warehousing capacity and resources
Surging consumer expectations in terms of e-Commerce – not to mention peak periods around promotional-driven events such as Black Friday and Cyber Monday – are generating huge spikes in an already demanding environment. This puts extra strain on fulfilment efforts. Successful logistics companies are therefore doing everything they can to prepare and ship orders faster than ever to online Marketplace shoppers – after all, speed equals market share.
Some have rolled out pop-up warehouses to support additional regional peak volume with one-time demand increases. They have also implemented enhanced technology (such as pick to light) in pop-up pick-to-order operations. This helps to support additional peak volume while avoiding operator congestion in the picking area that can lead to delays in the process. Others are dealing with labour shortages through the introduction of robots to autonomously pick up, move and store products on warehouse shelves.
Introducing new freight options to meet capacity shortages
Logistics players also have a variety of options to help deal with Ocean and Air freight capacity issues. Some have recalibrated their Core Carrier Programs to cover the majority of their volumes. These solutions can include space and equipment commitments. Another effort takes the form of Niche Carrier Engagement programs. Here, logistics companies use niche carriers to complement their core carriers both globally and regionally.
The move towards long-term agreements for block space is another good solution. This involves moving from traditional long-term deals to a different type of multi-year agreement and customer contract, with the offer of premium guarantees. The use of full vessel charters is also an option. This can be especially helpful for East-West trade routes, as the logistics company controls its own container equipment, using single Port of Loading and Port of Unloading with origin and destination for fast transit. Leasing equipment is also a great way to serve customers better. This can take the form of leasing and chartering a full and dedicated aircraft, for example.
Logistics players can also lease their own containers (ad hoc, monthly or quarterly) to supplement equipment shortages. This can help to optimize space reserved with their core carriers, especially if combined with extra loaders and charters with existing alliances.
Staying ahead of the game
Clearly, the COVID-19 pandemic affected global trade in a way that nobody anticipated. The explosive rise in online marketplaces has changed the way the world does business. And we’ve all had to react with new and sometimes surprising e-Commerce logistics solutions. But simply reacting is not enough. The best and most successful logistics companies are those that adapt, and then predict how future demands and trends are going to influence their world – and the world of their customers. Then, they put measures in place that will help them and their customers stay ahead of the game in the months and years to come.
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