eCommerce saw an unprecedented boom during the pandemic as people went into forced lockdowns and lives turned virtual. This shift in lifestyle saw a 55% jump in online spending, translating to $1.7 trillion. Globally, eCommerce sales are expected to reach $5.5 trillion in 2022.
The explosion in eCommerce is good news for retailers, but there’s a dilemma that businesses are facing: keeping up with demand. Disruptions, both natural and man-made, have defined the supply chain in the last two years. Labor shortages, regional surges with COVID-19 and associated movement restrictions, the oil and energy supply crisis, the war in Ukraine, and the deepening global financial crisis all contribute to a continual supply chain crisis. According to the Institute of Supply Management (ISM), about 75% of the companies surveyed reported supply chain disruptions, 80% expected disruptions in the near future, and 62% reported delays in receiving goods.
eCommerce businesses must build a resilient supply chain and be flexible in making inventories, warehouse management, and avoiding transport woes and bottlenecks when faced with unforeseen circumstances. The recent events have thrown up myriad scenarios that eCommerce retailers and businesses can learn from and prepare against in the future. Here we’ll list some market forces and supply chain woes that you should be mindful of for smooth functioning in the near future.
1. Economic crisis and inflation
The world is facing a deepening financial crisis due to the effects of the pandemic. Government-imposed lockdowns resulting in the loss of livelihoods and slowing of manufacturing and supply led to a domino effect on the economies, which slid into recession. Governments worldwide came up with stimulus packages totaling around $10 trillion that has further pushed them into debt, increased spending pressure, and led to a loss of revenue.
The Ukraine-Russia war, the deepening oil crisis, and the Nord Stream 1 pipeline explosion have forced most nations into increasing the costs of consumer items. In numbers, there was a 10.9% increase in consumer items in September 2022, as per Statista.
According to the National Retail Federation (NRF), consumers look for cost-effective deals as the holiday season approaches. Consumer tastes and buying capacity have changed. Amazon and other large retailers, like Walmart, Target, and Kohl’s, stocked up on items that were popular amongst buyers during the pandemic.
Market research reveals that the recent Prime Day sale did not rake in as much as the original Prime Day sale. Numerator did a study that found that the average spend per order on this month’s sale, in October 2022, was $46.68, down significantly from $60.29 from Prime Day in July.
2. Shipping costs will be up
Supply chain disruptions in shipping and transportation have led to unforeseen charges. U.S. carrier FedEx announced a 6.9% increase in annual general rate increases (GRI) for 2023. UPS is expected to follow suit soon.
Shipping contracts may limit the rate increase this year, but they typically don’t apply to delivery surcharges or other associated services, such as sales taxes which vary by state. Surcharges have grown to form as much as 40% versus 10% to 15% of transportation costs in past years. Europe is facing a similar scenario with a traffic jam in inventories at ports and warehouses, potentially resulting in high detention and demurrage costs.
That means prices for shipping packages are bound to increase, and last-mile delivery charges will add to the cost. Ground-delivery rates will increase by 6% next year, according to estimates by consultancy TransImpact LLC, the highest year-on-year increase in 12 years.
In eCommerce, shipping performance is critical. Consulting firm BCI Global recommends that companies move distribution networks closer to local markets and explore sustainable delivery models that are less expensive.
3. Reshoring of manufacturing
Supply chain shocks from the pandemic and the Russian invasion of Ukraine have led economies to look for solutions, and reshoring of production is one of them. This means finding suppliers nearby rather than offshore.
The chip shortage has affected the supply of automobiles and smart devices. Foxconn, Pegatron, and other manufacturing firms cut down on employees due to supply chain constraints and a power crisis in China. Pandemic-induced factory lockdowns, troubles with logistics, and difficulties with generating energy have affected global production.
Global demand for personal electronics has also decreased due to surging inflation, the recession, and the Ukraine war. According to data from market tracker IDC, the smartphone market will be cut down by 6.5% to 1.27 billion units.
Reshoring of manufacturing is a viable option. It could also prove to be a long-term boon to domestic growth, but this takes time, labor, and huge investments.
4. Labor and productivity slowdowns
The demand and supply gap is affecting the procurement industry, too. The great silent resignation is a fact. Across the board, many people aren’t coming back to work post-pandemic. The slow economy has also led to layoffs, and the resultant labor shortage has seen gaps in both skill and labor.
Manufacturing employment has dipped by nearly 400,000 in the U.S. from pre-pandemic levels. Loading, transportation, and factory floors face a crisis of hands.
There’s also a problem of perception about trade jobs, which are not attracting the right talent. The manufacturing and supply chain industries are now fully automated because of the introduction of new technology at every level. Companies are now seeking new employees who can bring a mix of technical, physical, and soft skills. An estimated 2.1 million critical jobs will remain unfilled by 2030.
Employers need to adopt a multifaceted approach. This will help them to find the right mix of technical skills, supervisory experience, etc.
5. Climate change and unexpected weather events
Climate change has led to extreme weather events all over the world. The North American Electric Reliability Corp (NERC) has warned that a large swathe of North America is at risk of having insufficient energy supplies during the coming winter again. The U.S. will likely suffer business losses of around $1 billion from just a single weather-related disaster.
China has been facing an energy crisis with rising coal prices that has led to reduced factory hours. China is the world supplier of diverse goods, and their slowdown has affected everything from sheep farmers in Australia to Apple products.
Recent global disasters show that eCommerce businesses need to focus on building resilience in the supply chains to cope with the next major unexpected event. A report by Gartner said that cutting physical footprints, reducing supplier and manufacturing sites, and minimizing movements could reduce risk by more than 66%.
6. Agile technology and tools
A robust supply management system with real-time visibility about movement and stock is of utmost importance. Companies want to access risk intelligence in close to real time in a digital format. Some of the technology tools and processes that can be deployed are:
- Supply network/chain mapping (SCM): to track and document the company's supply chain.
- Data analytics: to track customer demands, peaks, and troughs.
- Blockchain: a transparent digital ledger system that provides immutable records of transactions. It ensures free information, inventory, and financial flow between all the players involved.
- PPPR: implement the prevention, preparedness, response, and recovery (PPPR) risk management model.
- Multisource and near source: as mentioned above, being prepared with a backup plan is always prudent. Apple is already planning to incorporate the in-house chip tech of ARM in its devices to reduce reliance on Chinese chips. Intel plans to open European factories for semiconductor chips, which might just rejuvenate its stalling business.
Over the past few years, most businesses found themselves ill-prepared for the supply chain disruptions caused by the Pandemic, natural disasters, and the Ukraine-Russia war. The ensuing recession, rising freight and carrier costs and delays, labor shortages, depleted inventory levels, and fluctuating customer needs all require new, long-term strategies.
Alliances and priorities will shift with the Asia-Pacific region no longer a viable cheap supplier of goods and services. Hyper-globalization will most likely see a hyper-regional and even hyper-local shift. This means there is an urgent need to rethink offshoring, connectivity modes, and labor gaps. All operations and processes need to become more flexible and resilient without unnecessary cost and resource escalations. A fine balance between short and long-term priorities needs to be worked out.
Will Schneider is the founder of InsightQuote, a match-making service for B2B services, and writes informative posts about fulfillment services at Warehousing And Fulfillment. He is passionate about helping businesses find the right solutions to improve their operations. When not working, Will enjoys coaching youth basketball.
Published December 16, 2022