In 2023, the e-commerce giant is planning to close three fulfillment centers in the U.K., and expects to open two new warehouses in England over the next three years. Two facilities located in the English cities of Doncaster and Hemel Hempstead will close, as well as another in Gourock, Scotland.
Although Amazon said last week that it’s laying off more than 18,000 employees and recently secured an $8 billion loan from lenders, the 1,200 employees affected by the three warehouse closures have the option to relocate to other facilities nearby.
“We’re always evaluating our network to make sure it fits our business needs and to improve the experience for our employees and customers,” an Amazon spokesperson told Sourcing Journal. “As part of that effort, we may close older sites, enhance existing facilities or open new sites, and we’ve launched a consultation on the proposed closure of three fulfillment centers in 2023. We also plan to open two new fulfillment centers creating 2,500 new jobs over the next three years. All employees affected by site closure consultations will be offered the opportunity to transfer to other facilities, and we remain committed to our customers, employees, and communities across the U.K.”
The new fulfillment centers will be located in English counties of West Midlands and County Durham. Amazon currently operates 30 warehouses in the U.K.
The real estate shakeup comes as the U.K. business faces demands for better pay from its warehouse staff, with 300 workers planning to go on strike on Jan. 25 after the GMB Union authorized a walkout for employees at a Coventry warehouse.
Inflation and recession concerns weigh heavy across the supply chain
If Amazon, a business with more than $35 billion in liquidity as of Sept. 30, is making cuts and taking out loans, that might not be a great sign for the rest of the industry.
“The overall outlook for the year 2023 remains gloomy,” said Christian Roeloffs, co-founder and CEO, Container Xchange, a technology company offering a container trading and leasing platform, payment infrastructure and operating systems to global container logistics companies. “Europe is hit hard with an all-time high inflation; China struggles to cope with the virus and the U.S. continues to witness hinterland transportation challenges and labor unrest. Most of these challenges will stay in 2023. Consumer confidence will pick up, but it really depends on whether we witness more disruptions in the coming times.”
Rising costs of living from inflation will only add more fuel to the fire that extends to labor market, potentially leading to more strikes in Europe, the U.K. and North America. In its recently launched report on supply chain and shipping predictions, Container Xchange said it expects unresolved worker strikes of 2022 to spill over into 2023.
Currently, 35 percent of respondents to the Container Xchange survey say that since it’s been a tough few years for port workers, and they expect strikes will continue and cause congestion. Another 48 percent are more positive about the labor front, indicating that although the strikes may continue, they don’t see significant supply chain ahead.
Carriers will have surplus of vessels, equipment
The Container Xchange predictions also focused on areas including freight rates, port congestion and cargo availability—all topics of concern in both 2021 and 2022.
The platform predicts that as consumer demand falls, the current surplus of equipment such as containers will force carriers to avoid investing in new equipment, delay new vessels, scrap old ones and continue with blank sailings. Additionally, alliance carriers might continue to suspend and/or merge shipping services on different routes, and shipping lines may get into a price war to ensure profits.
‘‘Two, almost three exceptional years for carriers are definitely coming to an end. They will have to adapt back to lower margins due to a different supply and demand balance,” said Ruben Huber, founder and director, OceanX, in a statement. “Many customers, forced into high-cost contracts during the up cycle, will come for revenge in the down cycle. And regulatory pressures, following excessive profits, might appear on top of that, be it through bodies like the FMC, E.U. or China’s MOC, as they each review alliance exemptions, new taxation regulations or precedence cases from several complaints raised by shippers at different institutions.’’
Congestion through Q1 is likely, but the future isn’t as clear
Expect the congestion at container depots to remain, at least through the first quarter, the report says. Container depots will remain overstocked during this period as inventories run high. Feeble demand, the upcoming Chinese New Year, and inflation will keep the pickup volumes low, creating an overall challenging price environment for containers.
“There is just not enough depot space to accommodate all the containers,” said Roeloffs. “With the further release of container inventory into the market (e.g., from the disposal of leasing fleets), there will be added pressure on depots in the coming months. This will be a key challenge for some and a competitive advantage for others in the business, especially in China because of the empty container repositioning there.”
Supply chain experts are in debate over when the congestion will ease. While 46 percent believe container depots will be overloaded at the start but the supply will ease with time, another 40 percent say they will continue to become congested with containers eating up capacity.
Container Xchange also believes the inventory-heavy environment for retailers during the holiday season will lead to faster churn of inventory in the U.S., further accelerating inventory replenishment cycles industrywide. In turn, the quick cycles would cause an increase in demand in the export hubs as the U.S. starts to work on balancing its order-to-inventory ratio—further congesting these areas.
Expect freight rates to fall
For those concerned about spending on ocean freight, it appears both spot and contract rates will continue to drop this year. As an example, the spot rate for a 40-foot container going from China to the U.S. West Coast route fell by 20 percent month over month to $2,361 in October, Container Xchange says. One-way pickup charges for standard containers from China to North America declined on a monthly basis from $1,773 in May 2022 to $344 in October.
According to the company’s platform data, the average container prices and one-way leasing rates in October 2022 from Asia to the U.S. East Coast and West Coast were a respective 63 percent and 85 percent lower than the rates in October 2021.
Forty-four percent of survey respondents say contract rates will continue to plummet due to the oversupply of containers and drop in cargo demand, whereas another 35 percent believe contract rates will normalize to pre-pandemic demand. More than 17 percent believe contract rates will rise again as a result of the market slump.
Along with ocean freight, Container Xchange projects both trucking rates and air freight rates to contract as market conditions and volumes slowly return to pre-pandemic numbers.
India, Vietnam set to become container hubs
And as China’s role in the supply chain’s future is up in the air at the moment, particularly after the country implemented zero-Covid restrictions throughout much of 2022, new contenders are emerging as sourcing alternatives.
More than 67 percent of respondents believe Vietnam and India will rise as functioning container shipping hubs in 2023 and change the existing layout of the global shipping industry. Just 27 percent say they are hoping to still rely on China and its existing trade routes, illustrating the desire for diversification among a majority working in the supply chain.
“We will continue to see efforts towards diversification of supply chain sourcing and manufacturing out of China. This is a long-term view, and it will need vision and strategy from companies looking for a more resilient supply chain,” said Roeloffs. “We will witness increased container volumes intra-Asia and more countries will emerge as potential alternatives like Vietnam, India and more. In such an environment where there will be tighter margins for freight forwarders and traders, the cost is going to be everything. Leaders will look for ways to efficiency and business sustenance.”