From labor strikes at major ports and railroads to a crush of goods in transit to volatile freight rates or a warehousing crunch, the current logistics dynamic offers no shortage of unpredictability.
While eye-watering freight rates were the major story of 2021 heading into 2022, the tide has changed over the past six months, said Erik Rosica, lead fashion consultant, OEC Group, in a panel at Sourcing Journal’s Fall Summit.
“Barring any unforeseen circumstances, which we’re not out of the woods yet, I think after Chinese New Year, everybody will get a pretty favorable [rate] position,” Rosica said. “Whether you’re going direct to your carriers or steamship lines, or working for logistics providers, you’ll really have a clean slate for next year.”
The panel also touched on the current state of risk throughout the supply chain. Stacey Wagner, chief experience officer and vice president, Zappos.com, who described risk aversion as “a recipe to go out of business,” believes companies need to take more risks to thrive during disruptive times.
“I don’t think that we’ve innovated enough,” Wagner said. “I think that we’re just now lagging and sluggish in the coming through to say, ‘How can we think about this differently?’ But I haven’t seen a real substantial change in focus. And I worry that the next pandemic that we have will just repeat the same exact mistakes.”
Narvar chief customer officer Anisa Kumar acknowledged that taking risks and having contingency plans in an industry like logistics will inevitably come at an extra cost. In such a risky environment, one way to soften the blow of added expenses is through transparent communication with consumers on lead times, pickup times and other factors.
“From a customer lens, what you got to do is put the customer in the front of every one of your decisions, and then messaging them either regardless of what you’re seeing, or maybe because of what you’re seeing with the risk,” Kumar said. “You’re providing your frontline employees with the tools to message it right to the customer, and you’re better off handling the risks that come regardless of the number of mitigation procedures or facilities that you’ve kept behind the scenes.”
Bob Silverman, managing director, supply chain and logistics, JLL, didn’t mince words when he said the industry doesn’t have enough warehouse space to meet projected e-commerce demand. Citing JLL data, he said that the U.S. needs another 800 million to 1 billion in square footage to accommodate the growth in online commerce.
“Even today, we really barely have enough space to meet today’s requirements nationwide,” Silverman said, pointing to a 3 percent vacancy rate. “And in the hottest markets, Inland Empire, Calif.; Northern and Central New Jersey; Lehigh Valley, Pa.; Savannah, Ga. and Las Vegas, vacancies are maybe 1 percent.”
Vacancy is even lower in “Class A” buildings that have higher clear heights, and more dock doors and parking spaces, he said.
However, the exponential increase in rent and a potential recession have dampened demand in recent months.
“People who signed leases 10 years ago, are now looking at 2.5 to 3 times the rent just to renew in their building,” Silverman said. “However, on the development side, it’s sort of matching. Developers are kind of queasy about bringing more space to market. So that demand-supply imbalance that has been driving a lot of these rent increases, might not be going away that quickly.”
Kumar pointed out that getting the product out to the end consumer has been a practice driven largely by convenience and choice. But while these two characteristics define the post-pandemic consumer, retailers must craft their post-purchase delivery and returns strategies while balancing the P&L to keep the business from burning money.
“How can you pull costs out of the process, both forward or backward?” Kumar said. “On returns, can you take a day or two slower and get your costs down? Can you forecast your labor into these things better? Can you disposition at the final mile instead of tracking it all the way back to the supply chain?”
Zappos’ Wagner agreed based on his experiences.
“We’re seeing a lot of it in retail—a day or two later to cut back on your shipping costs and your return handling costs has really shown almost no impact to the customer experience,” Wagner said.
He also acknowledged the difficulty in catering to different subsets of consumers who not only shop differently, but have wildly varying expectations on how they’re getting their packages.
“It’s balancing and continuing to raise the bar with your online offering, whether it’s your assortment, whether it’s your technology that is listed on your website, it’s how easy to use it is. What do you offer here, and what’s the overall value proposition?” Wagner said. “But also, some folks want to get back out in the world and they’ll ask if there is a physical brick-and-mortar store offering. Is the returns going back to that?”