E-Commerce Logistics Demands, COVID-19 Empower Ocean Alliances

Although there is still a slim chance that the fourth quarter produces some rate compression – or a downturn in the need for e-commerce logistics. When freight levels are at an all-time high, there is little motivation for the three major shipping alliances to drop rates significantly during the remaining calendar year.

Shippers looking to 2021 would be wise to consider contingency budgeting – especially if you are a major importer competing in a supply chain environment that continues to be affected by ongoing growth in online sales and e-commerce logistics.

Likewise, there has never been a more important time to reassess your entire import supply chain to validate compliance with evolving trade regulations. Emerging pinch points in the international supply chain are elevating risk for shippers who must be prepared to address traditional risk areas that carry a financial impact.

As we have stated since early 2019, contingency planning must be the part of your monthly and sometimes weekly business plans. Diversification in foreign sourcing has never been more critical, particularly in an election season that has pushed global trade forward as individual candidates differentiating issue.  

Close review of the international transportation landscape can lay the groundwork for developing strategies that mitigate that risk heading into 2021.

Alliances Take Control Amid E-Commerce Boom

Consumer behaviors are shifting the traditional retail models, and the unchecked growth of e-commerce is keeping the global supply chain packed with product. 

Credit some of that international freight volume to the rapid production and movement of Personal Protective Equipment (PPE) in response to a global health crisis. At the same time, retail supply chains have been irreversibly impacted by the functional success of e-commerce. Until some of the demand cycles in both realms stabilize, predicting ocean shipping rates will be a challenge.

More importantly, the three major shipping alliances response to COVID-19 demands the attention of organizations that rely on global commerce and e-commerce logistics. Vessel operators have shown remarkable discipline by matching supply to demand volatility.

During the first half of the year, the three alliances (2M, Ocean Alliance and THE Alliance) constricted supply by canceling dozens of scheduled voyages with the intent to remove excess capacity. However the net effect was scarcity of space, i.e. rates were increased monthly or bi-weekly and started to build. Representing 21 ocean vessel operators and roughly 10 million 20-foot equivalent units (TEU), these alliances have maintained rate discipline as the retail supply chain began to open in July in August. 

In the past, increased demand for service and the prospect of rate increase motivated operators to add sailings. With a strategic approach that ensures vessels are filled before others are added, ocean carriers keep upward pressure on rates that are roughly 80 percent higher in a year-over-year comparison to 2019.

This strategy supports a more dependable service for international shippers as it creates more reliability for in-country logistics operators, but if the alliances maintain this discipline, plan for rates to stay elevated. Solid bookings will continue through October and contingency budgeting should be a focus for major importers.

Persisting Pinch Points Create Risk

As we approach what has traditionally been a calm period at the end of the e-commerce logistics peak season, the ports of Long Beach and Los Angeles are at capacity. Historically higher volume for this time of year will undoubtedly spur downstream challenges deep into Q4 and into 2021. 

Finding available chasses to support container movements will continue to be a problem into December. As these containers and chasses (to a lesser degree) move in country and on the rail, it is hard to balance the need for equipment during a disruption-filled year like we’ve had. Vessels hoping to expedite movement for the last wave of peak season freight to North America are now waiting for containers to come back to port so that have something to load and ship. 

We know there will be an end to this kind of imbalance, but we have not gotten there yet.

The timing has never been greater for organizations to assess their entire import and export supply chain. Look for places to increase efficiency. Identify pinch points that elevate risk that emerges in times of global volatility. At this point, organizations should have complete awareness of the supply chain challenges arising during COVID-19 and address their preparedness for the next global disruption, both economically and around traditional risk areas. 

Trade Regulations and Tariff Battles Require Eye on Compliance

Plaintiffs representing a diverse set of industries are suing the U.S. Trade Representative (USTR) for relief from China 301 tariffs. The argument: tariffs implemented without sufficient advanced notice caused unfair and improper financial harm to their organizations. Many shippers have been negatively impacted, some to a crippling point, and they are looking for any dollars they can get.

These organizations – including some of the world’s largest brands – will not likely get complete relief, but their actions demonstrate that businesses will not sit idle when trade laws are put in place, as they argue, without warning.

Meanwhile, implementation of the trade regulations intended to replace the North American Free Trade Agreement continues to carry some unexpected consequences.

The U.S.-Mexico-Canada Agreement (USMCA) is having the largest effect on businesses close to the automotive supply chain, but many companies were lulled into thinking there would be limited changes in the new agreement. Updated documentation is required to execute cross border entries. Make sure to review your international trade compliance processes to avoid this type of needless risk caused by what seems like a simple change in regulations. 

E-commerce Supply Chain 2020: Digital Deck the Halls

The challenges this year will be as long a family’s shopping list:

  • The traditional holiday peak converges with elevated online demand due to the COVID-19 pandemic. E-commerce sales will match or surpass brick-and-mortar. Consumers have multiple ordering channels to tap. E-commerce supply chain fulfillment and delivery operations need to respond to this decentralized − and unprecedented − demand-pull.
  • Many supply chains remain out of kilter, one of the pandemic’s many legacies. U.S. inventories are at their lowest levels in five years, according to several analysts. Stock-outs have been common throughout most of 2020. U.S. imports are spiking. However, those goods may not reach store shelves or distribution centers in time to satisfy peak consumption needs.

  • Parcel networks have been overwhelmed by demand since March. This has led to inconsistent delivery performance across the board. National and regional parcel carriers have maxed out their fulfillment and distribution infrastructures. Late deliveries mean that consumers will be forced to accept holiday service levels that are beneath their expectations. If there is good news, it’s that e-commerce consumers are aware of the problems and will be more tolerant of slower delivery. What they demand, and should expect, is access to real-time information about any service issues.
  • Consumers may order goods earlier than usual, allowing the supply chain to spread out delivery timetables to create a “load-leveling” effect. That would be positive news, but it should not automatically be counted upon. Amazon’s shift of its “Prime Day” program from July to mid-October could pull forward a fair amount of holiday activity.

  • Warehouse space is severely constrained. Amazon said several months ago it will need 50 percent more space to keep up with its projected holiday demand. Retailers with brick-and-mortar exposure need to position stores as “forward fulfillment” nodes. This allows orders to be pulled from store inventory and delivered over relatively short distances. Store networks will also support what is expected to be major demand spikes for in-store and curbside pickups of online orders. Pure-play e-tailers without store networks will need to get creative.
  • FedEx and UPS are levying meaningful peak surcharges on volumes from their largest customers. The U.S. Postal Service imposed the first peak surcharge in its history. Carriers say the fees are needed to offset their higher costs to serve. That is true, up to a point. Demands on delivery networks will be unprecedented, and carriers are pricing their services accordingly. Companies will have to consider this in their free shipping strategies to maintain profitability.

THE CLOCK IS TICKING

Is it too late for shippers and retailers to get their holiday house in order?

Not necessarily, but it will take fast action and deep planning. The challenges, as we’ve laid out, are immense. One key is to get ahead of the “demand curve.” When shippers gain visibility into end demand, they can prepare and execute a plan that enhances customer satisfaction and does so profitably. After all, meeting customer demands while losing money in the process is the hollowest of victories.

Managing the upstream channel is just as critical. Calibrating inventory flows with replenishment needs is a year-round challenge, and especially so during peak. The challenge is magnified this year with the headwind of COVID-19. Retailers need a clear line of sight into supplier production so they can forecast their inventory replenishment. In normal times, lack of visibility can lead to costly over-ordering to ensure adequate buffer stock. This season, however, over-ordering may be an adequate response, given how and where the inventory is positioned. 

During CSCMP’s EDGE 2020 Virtual Conference, Target Executive Vice President and Chief Supply Chain and Logistics Officer Arthur Valdez advised to “not be afraid to overreact.” That may sound counter-intuitive, but it can be an appropriate step during this peak. Target will be investing heavily in transportation services with a focus on improving delivery timing, Valdez said. Again, that appears to run against the grain as transport is considered a cost center. Yet it will be less costly than failing to execute deliveries because capacity is not available. A seasoned logistics partner can map out a strategy to leverage a customer’s existing assets, as well as to bring in outside capabilities that profitably meets customer demands.

This is especially important as shippers encounter an increasingly complex surcharge environment constructed by FedEx, UPS and, to a smaller degree, USPS and regional carriers.  High-volume FedEx and UPS customers could be looking at surcharges as high as $4 to $5 per piece. These are by far the most expensive surcharges we have ever seen. They can spell the difference between peak season success and failure, even if everything else breaks right. Any shipper expecting to tender significant traffic to either or both must be able to navigate those surcharges all within the framework of their logistics execution.

Amid the coming storm, it may be hard for folks to get a good fix on demand profiles beyond the holidays. But it pays to do so. For example, we may see another e-commerce surge early next year as fears of a combined COVID-seasonal flu cycle keep more consumers homebound. Already, we are seeing 2021 budget plans being adjusted to account for the lingering effect of COVID-19. We also expect similar peak season patterns for the next 3-5 years even after a coronavirus vaccine is approved and distributed. A strong logistics partner not only can help you get through 2020. It can prepare you for 2021, 2022, and beyond.

Q4 Forecast: Parcel Rates and Cost Impact

Not long ago parcel carriers were transporting 20-25 percent of their deliveries to residential addresses. By 2019, that number increased to about 50 percent. This year, 70 percent of all parcel carrier movements involve a residential address. The shift is largely driven by a consumer who is shopping from home either by choice, necessity or both. 

According to the Department of Commerce, U.S. retail e-commerce sales for the second quarter of 2020 were $211.5 billion, an increase of 31.8 percent over the first quarter of the year. During the second quarter of 2019, e-commerce sales increased just 12 percent over the same period in 2018. 

These are some telling numbers, and they paint a picture of a shifting consumer purchasing environment that’s pulling the major parcel carriers right along with it. For example, UPS saw its residential delivery volume increase 65 percent during the second quarter. This is just one of several carriers being asked to absorb and handle volume increases unlike anything their networks have ever experienced.

Here’s what shippers can expect on the parcel shipping front as 2020 winds down and the holiday season kicks into full speed.

2021 Parcel Rates: FedEx

FedEx Express (Domestic, U.S. Export and U.S. Import), FedEx Ground, and FedEx Home Delivery shipping rates will increase by an average of 4.9 percent. FedEx has increased these rates 4.9 percent every year since 2007. FedEx Freight will increase rates by an average of 5.9 percent. 

These are a sampling of the changes becoming effective Jan. 4, 2021:

  • Institute a 6 percent late fee to U.S. FedEx Express and FedEx Ground customers who don’t pay their invoice within their agreed upon payment terms. UPS implemented this fee in 2003.
  • New $16 Additional Handling Fee for packages where dimensions are greater than 105 inches in combined length plus girth. 
  • Additional handling charge for weight increased 6.25 percent to $25.50.
  • Additional handling charge for packaging increase 7.7 percent to $14.
  • DAS for Home Delivery is 7.5 percent from $4 to $4.30.
  • Oversize charge for Home Delivery has increased 8.3 percent from $120 to $130.
  • Residential Delivery charge for Home Delivery charge increased 8.75 percent from $4 to $4.35.
  • The ground minimum package charge (zone 2, 1 pound list rate) has increased by 6.44 percent to $8.76.
  • 2Day and Express Saver (3 day) shipments will take larger increases.
  • Longer zones have larger increases than shorter zones for Express services.
  • Surcharges have increased by more than the announced 4.9 percent for the ones most commonly applied.

Even though the GRI is 4.9 percent your true rate increase will be somewhere between 4.9 percent and 8 percent depending on usage of these additional services. This is the type of analysis Transportation Insight provides to our clients. Every year a GRI report is generated for our clients to aid in understanding the impact these rates will have on their transportation spend.

When Peak Season Lasts All Year

Carriers typically experience peak season about six weeks a year. Because of COVID-19 carriers have been running at peak season pace for several months straight. There’s never been this level of capacity utilization in the small package network, and it’s clear that carriers weren’t ready for it. As a result, the massive increase created management difficulties for the carriers which, in turn, implemented COVID-19 surcharges that create new cost management challenges for shippers

These charges went into effect in the U.S. during the first quarter of the year, with UPS and FedEx creating a peak season operating plan for spring and summer (to handle the demand of home delivery while simultaneously experiencing the collapse of their commercial delivery volume). This created major problems: commercial deliveries are traditionally carriers’ most profitable and have been reduced to a fraction of their “normal” levels. 

Tracking the cost impact of these surcharges isn’t always straightforward. UPS created a $0.30 charge for residential and SurePost packages while also raising by $31.45 a surcharge on difficult-to-handle parcels (e.g., extra-large boxes). FedEx imposed its own surcharges on large shippers and added a $0.30 charge for express and ground residential deliveries, and a $0.40 addition for SmartPost deliveries.  

Navigating the New Gauntlet

With COVID still impacting the shipping environment, carriers rolled out holiday peak season surcharges. For 2020, these charges will be broad-based and targeted at the shippers that more significantly impact the parcel carriers’ networks. 

Charges for UPS will range from $1, $2, and $3 for ground residential and SurePost packages. These charges will begin Nov. 15 and continue through Jan. 16, 2021. UPS is also tacking on an additional handling charge of $5 per package, a large package surcharge of $50, and an over-max-limit of $250. These charges will be in effect through Jan. 16. 

FedEx began its holiday peak season surcharges of $4.90 on Oct. 5 for packages needing additional handling. Oversized package incur a $52.50 surcharge and unauthorized packages cost an additional $350. These rates will be in effect until Jan. 17. In addition, FedEx’s residential ground packages incur surcharges capped at $4 per package, while residential express shipment surcharges are $5. The latter charges are both based on specific formulas. 

The U.S. Postal Service (USPS) will implement its own peak season surcharges beginning Oct. 18 and running through Dec. 27. The fees still need to receive regulatory approval, but we expect them to be passed. The USPS fees will be applied per package and will pertain to all commercial shippers.  

Maintaining Profitability

For the first time, we’re also seeing small package regional carriers implementing surcharges. Because these fees are based on formulas and difficult to compute, planning for, managing, reporting and auditing the surcharges is difficult. Unfortunately, the combination of COVID-19 and an e-commerce boom overturned the parcel industry’s apple cart, and the change will be forever felt as parcel shippers navigate this new gauntlet.

For most companies, speed is the most important supply chain deliverable. They’re looking to move volume to the end consumer to achieve speed at an acceptable price point. We’re also seeing many companies: 

  • Exploring opportunities for faster growth or service into specific markets.
  • Going direct to consumers
  • Pivoting to maintain Amazon Prime designations by complying with requirements taking effect in February.

Managing these complexities on your own has become a major headache for parcel shippers – especially when logistics management isn’t your core business. Not prepared to make long-term commitments in technology, infrastructure, and employees, more companies are turning to third-party logistics providers (3PLs) to move quickly and affordably in this customer-centric business world. 

Third-party fulfillment allows companies to ramp up quickly to meet demand. It also creates a more elastic fulfillment environment that can be scaled up or down, depending on the volume of freight that’s moving through the operation. A 3PL will also help you lay out a master plan in advance, and then adjust accordingly as rate hikes, surcharges, and other variables come into play.   

In light of the rising costs of parcel shipping—and the myriad surcharges that went into effect in 2020—the biggest questions that shippers are asking themselves right now are: Where should I place my inventory? And, what SKUs should I be stocking in order to meet customer demand?  The companies that find the right balance between these two points will then be the ones that maintain profitability through this uncertainty…and beyond. 

Indirect: Expert Insight Helps Manage Fluctuating Supply Costs

With economic volatility expected to continue through the remainder of 2020, understanding how these added costs affect your indirect spend management can support your efforts to control line item expenses that don’t often receive close scrutiny until budget season.

Although corrugated linerboard prices are holding steady, anticipated cost increases in polyethylene products create new profitability challenges. In this environment, a partner with group purchasing power and expert industry insight delivers quantifiable value through strong contract pricing and keen awareness of the alternative solutions that improve cost management compared to traditional buying habits.

Here’s a look at some of the manufacturing trends that are affecting the availability and cost of supplies you require to operate your business efficiently and effectively.

Manufacturing Activity Grew in June

Economic activity in the manufacturing sector grew in June, according to the Institute of Supply Management. The Purchasing Managers Index (PMI) increased 9.5 percent to 52.6, reflecting an expansion in the overall economy for the second straight month after April contraction ended 133 straight months of growth.

The New Orders Index jumped significantly to 56.4, up 26.4 percent from May. The Production Index registered 57.3 in June, an increase of 24.1 percent from May. 

Of the 18 industries that participated in the ISM monthly survey, 13 reported growth. 

With that growth has come increases in the ISM Price Index which rose to 51.3 in June, an increase of 10 percent over prior month.

  • Caustic soda, copper, crude oil, personal protection equipment supplies and steel all reported increases in price.
  • Methanol, packaging materials and plastic products all reported price declines.
  • Of 18 industries surveyed, three reported higher prices, 12 reported no price change, and only three reported lower prices.

Looking more broadly at the economic impacts of COVID-19 in the first half of 2020, the U.S. Real Gross Domestic Product decreased at an annual rate of 5 percent for the first quarter. That decrease reflects negative contributions from:

  • Personal consumption expenditures
  • Private inventory investment
  • Non-residential fixed investment
  • Exports

Those negative GDP contributions were partially offset by contributions from:

  • Residential fixed investment
  • Government spending
  • Imports

Meanwhile, U.S. unemployment dropped to 11.1 percent in June, reflecting an improvement of 3.2 million people removed from the jobless count. For manufacturing, ISM’s Employment Index registered 42.1, an improvement of 10 percent compared to May.

Linerboard Pricing Steady, Other Packaging Costs Volatile

Containerboard production continues to increase, supporting steady pricing throughout the first half of the year. In May, that increase was just 1 percent, month over month, but the uptick in production reflects a 6 percent increase year over year. 

Corrugated pricing for June is at $715 per ton. Industry analysts predict any anticipated cost reductions will fall short as demand has remained stronger than expected. Additional capacity of containerboard grades has been delayed. This means a previously projected decrease of $30 per ton is not expected to be realized in the market. 

Meanwhile, Old Corrugated Containers (OCC) pricing jumped dramatically during the global pandemic, up 196 percent in April compared to January 2020 levels.

Sales for both Linear Low Density Polyethylene (LLDPE) and Low Density Polyethylene (LDPE) are up through April compared to prior year. Domestic sales for LLDPE are up 2.3 percent, while LDPE sales are up 6.7 percent.

In response, producers have cut production to control inventory levels, as indicated by LDPE operating rates at 89.3 percent in April and LLDPE operating rates at 92 percent.

LLDPE large buyer contract prices bounced around during the first half of 2020, but have settled approximately 5 percent below the levels we saw at the end of 2019. Expect those contract prices to average 55 cents per pound in the third quarter of 2020.

At the same time, expect an increase of about 4 cents per pound for all grades of polyethylene resins. These increases are driven largely by efforts to control inventory levels, improvements in domestic demand and higher oil prices.

All major manufacturers have already sent increase notifications. Among these, stretch film producers announced a 6 percent increase in costs.

Control Indirect Supply Costs with an Expert Partner

Indirect supply management is a tool available to your team to find the essential items you need at reasonable prices. By working with a partner in this space, your company can consolidate its overall supply space and form strategic partnerships on items you regularly need.

Our partnerships are unique because we can put all your indirect supply needs together in a group purchasing model, which allows us to drive savings for you.

No matter how you are sourcing your products today, it can be improved through consolidation and smart partnerships. As you set your plans for the rest of 2020 and into 2021, now is the time to look at your accounts payable data and get a spend analysis to map out how you can get even greater efficiency around your indirect materials operation.

Transportation Insight is your partner in driving success now and into the future. Let’s start a conversation today about how we can drive savings for your company together.

From NAFTA to USMCA: All Trade Agreements Are Not Created Equal

Furthermore, many companies focused on overcoming operational challenges of the pandemic have been able to delay response to a regulatory action that’s been outside the spotlight.

Until now.

On July 1, the United States-Mexico-Canada Agreement (USMCA) replaces the existing requirements of the North American Free Trade Agreement (NAFTA), with an exception for certain automotive products that will have a three-year transitional period. Many elements of NAFTA were retained in the new agreement; however, there are distinctions in the USMCA that require review and consideration by trade participants to ensure they effectively manage compliance during this program transition. According to a recent survey, there appears to be some confusion among supply chain managers on how to implement these changes and mitigate non-compliance risk to maintain company profitability.

Importers’ goods that qualified under NAFTA may also be eligible for USMCA; however, there are subtle changes that may impact those determinations. USMCA due diligence should be conducted by all trade participants as a demonstration of compliance, for all companies participating in North American trade between the United States, Mexico and/or Canada.

5 Differences Between NAFTA and USMCA

  1. Importers will no longer be required to complete a formal NAFTA certification document. A certificate of origin may now be completed based on information provided by the producer. U.S. Customs and Border Protection (CBP) is not mandating a standard format for certificates of origin as long as they contain all of the required data elements. A best practice is to have the certification in hand before making a claim. Previous NAFTA certificates and certification documentation under USMCA must be kept for a minimum of five years.
  2. The de minimis threshold increases. NAFTA’s threshold of 7 percent for FOB value increases under USMCA to 10 percent. The de minimis for textiles and apparel is different.
  3. The terms of the USMCA will remain in effect for 16 years, after which time the parties can choose to revisit and/or renegotiate those terms, or withdraw from the agreement altogether. The agreement is also subject to a review every six years, at which point the United States, Mexico, and Canada can decide whether or not to extend the agreement if they feel doing so would be beneficial.
  4. Merchandise Process Fee (MPF) refunds will not be made on post-importation claims. An importer who fails to claim preferential tariff treatment at the time of entry will not be able to recoup their MPF through a post-summary correction or reconciliation later.
  5. Changes were made to the Rule of Origin for various goods (e.g., manufactured goods, pharmaceuticals, healthcare products, textiles and apparel, agricultural goods, etc.). However there are significant changes within the automotive sector concerning eligibility based on regional value content. In general, USMCA now requires the total North American-based content of a vehicle to equal 75 percent (up from 62.5 percent). USMCA also requires that 70 percent of a vehicle’s steel and aluminum must originate in North America.

How should importers prepare for the USMCA transition to ensure compliance?

Importers should carefully review their imported goods to ensure they understand the new rules of origin and can verify that they qualify under the new agreement. Binding rulings that determine parameters of origin determination under NAFTA will be invalid, and a new binding ruling will be required for USMCA.

We also recommend performing a comprehensive review of imported goods through internal or external compliance means to demonstrate USMCA Compliance due diligence. For example, there may be cases where goods did not qualify under the terms of NAFTA but may now qualify under USMCA.

And above all else, it is imperative that importers maintain a proper record-keeping system. This means you must document where all of your goods originate, and you must have on file a detailed description of your sourcing, production and determination process that clearly defines that the goods qualify.

Our Experience is Your Compass

It is a grave error for importers to assume their goods qualify under USMCA, even if they were NAFTA eligible.

To help guide you through the necessary process to determine whether or not your products do meet USMCA rules, Transportation Insight’s team of international compliance consultants are ready to help you outline and execute a personalized scope of work plan to ensure your USMCA program is in full compliance.

While your focus today on maximum supply chain efficiency can improve your ability to meet arising market demands, a partner with expertise in international trade compliance brings you peace of mind – and so much more. We take over the work of helping you navigate through the change from NAFTA to USMCA so you can progress toward global supply chain mastery.

Make sure your trade compliance processes are updated to protect your business financial risk that emerges during the implementation of complex new regulations. Contact one of our global trade compliance experts today for a free consultation.

Mitigating Parcel Challenges in a Post-Coronavirus World

Consumers are now using e-commerce as their primary channel to buy everything from groceries and small electronics to home appliances and even cars. Most of those items move through one of three parcel networks: FedEx, UPS, or the U.S. Postal Service. Because of the sheer amount of parcels being processed and handled across the United States, we’re seeing natural “log jam” points come alive, resulting in delayed delivery and dissatisfied customers.

With the challenges mounting, is it possible to mitigate issues and maintain customer satisfaction? It’s possible – but it’s critical for teams to work together and understanding the challenges currently in play.

UPS Experiences Backups In The Northeast

The Northeast region of the United States was heavily impacted by the spread of COVID-19, forcing major cities like Boston and New York to virtually shut down overnight. Although those cities are starting to open, there remains a major backlog of parcels waiting for sorting and delivery.

At one UPS facility in Rhode Island, at least 40 UPS trailers remain on the dock, waiting to be processed. The parcels in these trailers represent a substantial amount of packages, destined for many different destinations across the northeast. Potentially, that could reflect over tens of thousands of customers who are frustrated because the items they ordered are not being processed for delivery.

The northeast isn’t the only facility experiencing problems. In Tucson, Arizona, employees at one facility is expressing concern about an outbreak of COVID-19. The local union claims 36 employees tested positive for Coronavirus, while three have been hospitalized for COVID-19 symptoms. If this facility shuts down for cleaning and sterilization, it could also create problems for parcel delivery in the Southwest as well, including the major population centers of Los Angeles and Phoenix.

Trouble Continues for the U.S. Postal Service

Packages sent through the mail are also facing delay threats due to the COVID-19 pandemic. The U.S. Postal Service is chartered by the U.S. Congress to deliver first-class mail, and in 2019 they delivered over 143 billion pieces of mail to 160 million addresses across the country, including parcel delivery through Priority Mail and other products.

But the COVID-19 outbreak has forced massive changes in their structure and how they manage their workforce. According to data from the USPS, at least 60 postal workers have passed away due to COVID-19 complications, 2,400 have tested positive for Coronavirus, and 17,000 employees – or three percent of their workforce – were temporarily displaced on quarantine. While there’s no way to measure the human loss, the number of employees affected by this virus is forcing the Board of Governors to work up a plan to keep employees healthy despite a decline in profit.

The profit drop comes from a reduction in one of their most successful business areas: Direct mail advertising. At one point, direct mail advertising made up 23 percent of revenue for the Postal Service. As companies look to save money and find new ways to get in front of consumers, they are pulling away from pre-sorted and direct mail advertising, putting a major impact in the USPS budget. The future of the Postal Service is now in question, as they are experiencing both a cash and personnel crunch like never before.

Managing Difficulties and Driving Customer Satisfaction

Although the COVID-19 pandemic is creating challenges, it’s nothing that we cannot overcome. With a combination of actionable insight and sound decision making, it’s possible to still drive customer satisfaction by understanding and controlling the current situation.

To start, it may be useful to start a relationship with a secondary carrier. Opening a new door with a carrier can expand your options, especially when it comes to expedited parcel delivery. For example: although UPS has an expansive ground network, FedEx can offer more daily flight connections. Understanding the tradeoffs and opportunities give you an upper hand in determining how to ship parcels to consumers, and through what options.

From there, constant analysis of parcel delivery optimization can help you determine how effective your plans are, and how to improve them even further. Through service and compliance audits, you can find out how quickly your packages are moving, if they are moving within guaranteed service parameters, and if how many packages end up lost or damaged.

Finally, understanding the current parcel situation can help you mitigate and manage customer expectations. Expressing the potential problems and managing an understanding of when parcels may be delivered can help customers better plan for the issues, driving better loyalty in the end.

Bringing it All Together With a Trusted Partner

Navigating the parcel world in a post-Coronavirus world doesn’t have to be intimidating. The experts at Transportation Insight can help you identify change opportunities in your parcel delivery program, and lead to long-term success. Schedule a consultation with us today, and learn how our decades of experience can quickly improve your parcel program.

Parcel Volume Caps Emerge Amid Retail Slump

Bound for a stay-at-home society quarantined under COVID-19 guidelines, a whipsaw in residential delivery volume is a burden on small package carriers like FedEx and UPS which are accustomed to commercial service driving operational revenue.

In response to the dynamics of the current norm, service providers across the e-commerce supply chain are taking unprecedented steps to control their own financial performance while still delivering a satisfying shopping and delivery experience.

Effects of the COVID-19 disruption are still emerging, even as organizations work to pivot their processes to meet the needs of a post-pandemic supply chain. Shippers that understand how shifts in consumer demands manifest across small package networks can pivot their supply chain strategy to control costs, avoid risk and capitalize on opportunity.

Retail Sales Plunge During April

U.S. retail sales dropped 16.4 percent during April, the largest drop of its kind since 1992. The April decline doubled the previous record for one-month tumble in the sales indicator – set just a month prior during March’s 8.3 percent record drop.

While the U.S. Department of Commerce reports the sharpest dips for clothing, electronics and furniture stores, society’s continued migration toward the online sales platform accelerates.

Month over month, the online segment posted 8.4 percent growth in April as Americans shopped from home for an expanding diversity of products, from groceries to office supplies. Compared to last year, the changes in consumer behavior accelerated by COVID-19 has increased e-commerce sales 21.6 percent.

DHL, which provides local e-commerce delivery in major U.S. markets, reported volume increases of 36 percent compared to February numbers. Increase is sharpest in the Northeast, according to a release that also stated that an increase in e-commerce orders over the past five weeks has pushed DHL’s parcel volume to peak season levels.

As U.S. businesses begin reopening their doors, monitoring the evolution of consumer buying habits after COVID-19 will be an important piece in maintaining an optimal parcel shipping strategy. Will the U.S. embrace on-site shopping again, particularly in malls and other brick-and-mortar establishments? How much of your retail sales will continue to come through the e-commerce channel?

Whether your organization is an e-commerce legacy or you’re seizing new market share, serving online customers requires an expert understanding of the service implications on transportation costs. In the hurry to serve peaking customer demand, it is easy to lose sight of profitability at the order and item-level. Lacking that visibility could prevent you from capitalizing in growth areas emerging in the same environment as broader economic changes.

FedEx Limits Parcel Shipments for Kohl’s and Others

FedEx limited the number of items that about two dozen other retailers can ship from certain locations. Applied in certain geographies where volume is heaviest, the move comes as retailers across the nation have increasingly begin using closed storefronts to fulfill online orders.

For retailers, this alternative fulfillment strategy facilitates sales even when other conditions pre-empt an on-site purchase. When fulfillment alternatives are included in supply chain contingency planning, retailers can quickly pivot their network to serve emerging customer segments or specific geographies, and still maintain optimal transportation cost.

“These customers have seen significant volume growth since the spread of Covid-19,” FedEx said last week in a notice to its Ground workers reviewed by The Wall Street Journal. “In a time of already high volume growth, capping the number of packages to be picked up at these locations will limit any negative impacts to the FedEx Ground network.”

While retailers are able to keep inventory moving off shelves though online fulfillment, the volume increases in certain parts of the country have challenged FedEx facilities that were not prepared to handle a rapid increase. This is most prevalent along the East Coast and West Coast, particularly the Pacific Northwest, where the COVID-19 impacted has persisted the longest.

Customers initially affected by FedEx shipping limitations included: Kohl’s, Belk Inc., Neiman Marcus Group Inc. and Nordstrom Inc., retailers like Abercrombie & Fitch Co., Bed Bath & Beyond Inc., Hobby Lobby Stores Inc. and Eddie Bauer, and other sellers like Groupon Inc. and Young Living Essential Oils LLC. The limits varied at each location.

In an environment when parcel carriers are limiting volumes, shippers can improve critical business decision making through on-demand access to dashboards that reveal real-time access to your order volume, historical transportation transactions, carrier volume requirements and accessorial trends. Increased visibility to these and other Key Performance Indicators can deliver improved cost management and increased awareness of cost-service trade-offs.

Supply Chain Master Can Map, Mitigate Risk

Organizations that are re-calibrating their supply networks to address the weaknesses and opportunities emerging during COVID-19 can benefit significantly from the support of a supply chain expert.

Our unrivalled expertise gained across thousands of supply chains allows us to offer guidance when the way forward is unclear. We’re currently helping hundreds of clients assess their small package program to make sure they have the network in place to meet e-commerce delivery demand today and tomorrow. Deploying a best-in-class technology platform to gather, manage and analyze your parcel data, we provide evidence to support your go-forward strategies.

Leveraging this technology alongside deep parcel industry knowledge and multi-modal expertise, shippers can effectively identify any existing supply chain gaps impact performance and cost management.

To learn more about how we can map your strategies for e-commerce success in the face of supply chain disruption, talk to an expert today.

Examine Indirect Spend to Drive COVID-19 Cost Savings

The spread of the COVID-19 virus disrupts transportation networks, products paths and consumer demands that drive your performance. The problems that threaten business viability merit priority response.

In the current Coronavirus climate, the supplies for your everyday functions also need attention. An expert partner who can take over management of complex indirect spend areas can provide critical cost savings, which you can rapidly deploy in other areas of your business.

A reliable sourcing resource can also leverage long-term relationships and collective buying power to help make sure you have the Maintenance, Repair and Operation (MRO) items, office products, and packaging materials required to support your operations.

Here’s some of the latest marketplace activities that could affect costs in your indirect spend categories and challenge your ability to secure vital supplies.

MRO Items for Health, Safety in Short Supply

Most organizations that support MRO procurement are operating distribution centers and warehouses as usual, with added attention to necessary safety precautions at these work sites. Products are still moving out facility doors. However, distributors are placing priority on serving needs for specific “essential” industries, such as healthcare providers and first responders.

That’s a good business decision for these supplier partners, particularly as they face short supplies for personal protection equipment. Protective gloves, masks, coverall suits and similar products are all in back-order status.

Although healthcare facilities get priority service for these items, if you have needs, go ahead and place orders with your supply partners to make sure you are in the queue when supplies become available.

To expedite MRO service, many suppliers are shipping products directly to production facilities. This can expedite the process of getting needed products to end users. Make sure to explore direct shipping options from your supplier partners.

Social Distancing Affects Vendor Managed MRO Inventory Process

One of the biggest impacts of the novel Coronavirus in the MRO space is in the area of vendor managed inventory. State and federal directives are limiting contact restrict suppliers’ ability to complete on-site visits to monitor MRO supply needs.

Vendors provide an important resource in making sure you manage an optimal supply of MRO items. Too much product can consume valuable operational and storage space. Too few resources can threaten a shutdown at critical times.

To make sure their clients are able to continue monitoring their MRO needs, many suppliers are providing hand-held scanners and creating a customer-managed inventory environment. This keeps products moving, but it is important to monitor activity. Supply inventory can quickly get out of balance and create unnecessary costs.

Available Office and Facility Supplies Still Moving

Distribution of office and facility supply products continues as usual, but many of the same products in short supply on grocery store shelves are also limited in commercial and industrial settings. Paper products, disinfectant, hand sanitizer and similar products get priority delivery to healthcare operations, leaving a short supply which puts limits on available resources.

In some geographical regions, the desktop delivery option is discontinued, and the typical next day delivery guarantee is suspended. While there’s no sign of a supply crisis for the majority of these items, it may become harder to get some of the more common office and facility supply items as more states adapt to shelter-in-place environments..

When you are dealing with your supplier partners, a little bit of patience can go a long way. Like many of us, they are working in remote environments. In some cases, companies providing essential workplace supplies employ thousands of people unaccustomed to working outside of the office. As they shift remote, some systems aren’t engineered to handle additional workflow yet.

Rest assured, your supply partner is working to meet your needs. When you seek support, response may be delayed, but having patience with your trusted partner can reap benefits today and tomorrow.

If you encounter supply changes, we can leverage our power as a Group Purchasing Organization to tap additional supply resources. In the world of indirect sourcing, strategic partnerships not only support a network of options, but they also can help realize significant cost savings.

E-Commerce Drives Boom in Cardboard, Packaging

Many manufacturers and distributors of packaging are deemed essential because they are supporting medical supplies, pharmaceuticals, energy generation, and food and beverages. Increasingly, operations not supporting essential end uses are production reduction or shutdown.

Corrugate facilities are running at full capacity to meet a demand spike driven by online ordering. One key area to watch in this aspect of packaging is linerboard prices. Right now, those prices are stable after a slight decrease in January. Linerboard pricing will deserve a close eye over the next few months as old corrugated container (OCC) prices rise and forecast demand increases.

For flexible packaging products like polybags, stretch film, poly sheeting, etc., prices continue to decline due to a decrease in global oil prices. With many e-commerce shipments relying on these materials, it will still be important to monitor not just cost, but ability to access supply.

Rely on Strategic Sourcing, Relationships, Patience to Weather the Storm

When it comes to indirect materials that support operational process, many organizations make purchases on a tactical basis. Now, when uncertainty clouds the market place, a partner that deploys a strategic mindset to indirect spend can be a vital resource.

Transportation Insight has developed strategic partnerships with suppliers. In communicating with our supplier partners more and more, we’re learning that MRO, office supply and packaging providers are supporting the clients that work well with them. When you’ve built relationships over decades, as we have, achieving win-win scenarios for everyone involved becomes second nature.

Let us leverage the partnerships we’ve created to help you get indirect spend reductions, and, more importantly, access reliable supplier partners that you can depend on during times like these.

Right now, many organizations are thinking about short-term survival. As you prepare for business after the COVID-19 pandemic recedes, instead of revisiting old strategies, consider opportunities that deliver better service at improved cost.

Let us show you a more strategic way of addressing your indirect spend management. To understand how much you can start saving today, schedule an indirect spend assessment. We often achieve double-digit savings for our clients, and we may be able to help you drive cost out of your supply chain.