07 Oct 2021
Supply chain disruptions have plagued the retail landscape in the United States in recent months, raising concerns that Christmas shoppers may be faced with stockouts rather than gifts when the season for Christmas is over. vacation will begin. Some large retailers have tried to bypass international supply bottlenecks by contracting with foreign shipping companies, but the terms of the deals are not always a good deal.
Prices for long-term shipping contracts have more than doubled since the same period last year, according to an article on Quartz. Even so, long-term contracts tend to be cheaper than the one-time “spot rate” charges that retailers have incurred to have products shipped at the last minute. Experts fear, however, that long-term contracts will force retailers to pay more after overseas shipping costs normalize.
Dollar Tree, for example, has a shipping contract until 2024, although analysts see supply chain issues resolve themselves in 2022 or 2023, leaving the retailer to pay shipping fees. ‘Shipping above market rates for a year or more.
US retailers face bottlenecks at many points in the global supply chain. The ability of retailers to put products on the shelves has been compromised by a variety of factors: a resurgence in demand for products after the first wave of pandemic shutdowns, labor shortages in the United States in transportation and logistics, shutdowns production in Asia and Southeast Asia due to COVID -19, the high-profile blockade of the Suez Canal and environmental devastation in parts of Europe due to flooding.
There has even been disruption on the packaging side of the equation, with a shortage of shipping containers requiring retailers like IKEA purchase a supply for their own use.
Shipping issues aren’t the only global supply chain issue that may impact vacation sales and retail in the future.
The tech world is facing a shortage of computer chips which, according to the BBC, appears to be linked to disproportionate demand due to 5G adoption, manufacturing complexities, and chip hoarding by some tech companies. These chips are the basis of products as diverse as video game consoles, cars, washing machines and smartphones.
DISCUSSION QUESTIONS: Is being locked into a long term overseas shipping contract worth it for a large retailer? What other ways might be more or less effective in alleviating short-term supply chain problems? When do you see supply chain problems easing given what we know now, and will multi-year contracts certainly outlast disruptions?
“Long-term contracts are always a form of play. There are many variables that retailers have to incorporate into a meat grinder that ends up making a valid recommendation.”