Pandemic-fueled retail buoys 2020 peak season

The acceleration of e-commerce growth during 2020 amid the COVID-19 pandemic — propelled by lockdowns, the closures of brick-and-mortar retail locations and customer desire to prioritize social distancing over shopping trips — is by now well-established. DHL Express U.S. CEO Greg Hewitt noted that volumes more typical for the peak season were moving as early as the second quarter, driven by a spike in online shopping and urgent shipments of personal protective equipment (PPE). [caption id="attachment_93486" align="alignright" width="450"] Many more packages will arrive at homes via vans like these this peak season, as shoppers turn to their computers over Black Friday lines. Photo/Amazon[/caption] The cancellation of many passenger flights has undoubtedly kept cargo capacity tight during those months. Shipments of personal protective equipment (PPE) and other medical equipment related to the pandemic competed for reduced space with more typical general cargo, sending airfreight rates soaring to easily twice the prior year’s rates. Meanwhile, in addition to the major e-commerce companies like Amazon and Alibaba, new entrants to the e-commerce scene and the larger cross-border market are emerging due to social distancing pressures and physical store closures. The new shippers entering the cross-border e-commerce market, combined with domestic and cross-border sales growth at major e-commerce companies, have spurred express operators and e-commerce companies relying on ACMI and charter capacity to expand their routes and capacity in support of increased B2C fulfillment need. While the end of the year is traditionally the busiest time for airfreight during air cargo’s peak season, as retailers stock up for a surge in consumer purchasing ahead of the holiday season, 2020’s peak season is shaping up differently than in recent years. The rapid e-commerce growth and closure of brick-and-mortar stores is tipping the balance between B2B and B2C deliveries, moving the “final mile” away from trucks unloading pallets at malls to couriers, postal workers and express workers making home deliveries. Shipments that may have been general cargo for retailers ahead of 2019’s peak season are no longer headed to physical stores, but instead await Cyber Monday shoppers in e-commerce distribution warehouses. Air cargo operators, e-commerce giants and logistics companies are taking lessons learned from the surprise early peak this year and adapting them to meet capacity needs for the traditional peak season. This is despite the higher rates, increased difficulty in securing charter capacity for the peak season and other challenges surrounding air cargo’s busiest time of year. An early start to the top Airfreight rates in the final three quarters of 2020 have diverged from historical performance, peaking in May rather than the typical October-December period, as widescale lockdowns and travel bans sent shockwaves across aviation, and a chunk of global airfreight capacity vanished from the market. Average freight rates peaked $6.20 per kg in May after climbing during the most significant month-over-month jump between March and April, as cargo capacity fell off between those months. Rates have since stabilized below the peak level, but are still much higher year over year. In the most recent monthly update from Drewry Sea & Air Shipper Insight, the market intelligence firm reported that average rates declined slightly from August to September, to $5.50 per kg for September — a YoY increase of 106%. The stabilization and decline from the May peak is due largely to the efforts of the industry, which has quickly instituted measures to adapt to the changes in the balance between cargo operations with passenger and freighter aircraft. In the U.S., DHL Express saw a “second peak” in the summer, with 50% YoY growth during some months, said U.S. Chief Commercial Officer Chet Paul. While the surprise peak in the summer was “unprecedented,” Paul noted that “heading to peak season again, we’re well-prepared,” even as DHL Express is again expecting 50% YoY growth inbound to the U.S. and 30% outbound growth during this peak, mostly due to increases in e-commerce. Demand has been down slightly in the lead-up to peak season — only about 8% YoY for September according to IATA — but current forecasts overall for U.S. cross-border are for a 45% YoY increase in volumes for major shopping holidays, according to Paul. “To prepare, we’ve already done a lot in the U.S. and the Americas in general,” said Paul. “One of the big things that has helped us over the last few months is the fact that we own our fleet and facilities, and we own a lot of our resources.” DHL Express has also invested more than $20 million in its hubs, gateways and facilities in the U.S. this year, and is “now in great shape heading into the traditional peak,” said Paul. DHL, alongside the other express giants, has brought on thousands of seasonal workers to handle the 2020 surge. DHL hired more than 3,000 employees in its U.S. Express division alone, and in September, UPS announced it would hire more than 100,000 seasonal workers in preparation for a record peak. It is typical for the big express companies to add surcharges for shipments around the peak season, but UPS and FedEx also added surcharges during the initial peak demand period in the first half before eventually reducing the surcharges as demand stabilized . Express companies have again added surcharges for the holiday peak, as a way to mitigate demand during the busy season. As the elevated rates indicate, capacity is especially tight this peak season and it can be difficult for freight forwarders to secure capacity on scheduled routes. To address the shortage, many freight forwarders, e-commerce companies and express operators have turned to the charter market to support peak operations. Among the recent charter additions are: a China-Europe route with China Eastern Airlines, chartered by Netherlands-based Team Freight Forwarding and China-based Proair Logistics , in support of e-commerce and peak season volumes; Atlas-operated Latin America charters on behalf of Cainiao; and National Airlines operating a trans-Atlantic route to Cologne-Bonn Airport (CGN) for UPS . China’s major e-commerce event, the 11.11 Singles Day sales festival, has already taken place this year and surpassed all previous years in more ways than one. First, rather than taking place as a 24-hour event, sales took place in phases over 11 days from Nov. 1-11 as part of an effort to grow the cross-border elements of the sale and increase participation from new brands, merchants and overseas sellers by giving the sellers more time to participate. The effort to bring in new merchants and overseas brands was apparently successful, with 2020’s sales reaching nearly double 2019 levels at $74.1 billion in gross merchandise sales. Cainiao, Alibaba’s logistics arm, processed 2.32 billion orders for delivery during the event. Of that, U.S. brands made up the largest share of cross-border sales, totaling $5.4 billion, while brands from other countries including Australia, Canada, Germany, Japan and the U.K. were also major sellers during the event. The successful overseas sales during 2020 Singles Day are also the culmination of early preparation, as Cainiao announced plans as early as June to quadruple its international charter network through March 2021 to around 1,260, with a focus on Singles Day . The spike in charters from Cainiao expedites its cross-border e-commerce shipments to Latin American markets and Liege Airport (LGG) in Europe, which serves as a European distribution hub for Cainiao. Of the 1,260 flights, more than half were in support of Singles Day shipment volumes. Much of the peak season buzz surrounds the major integrators and e-commerce companies like FedEx, UPS, Amazon and Alibaba, but other companies with smaller shares of the logistics market are also seizing the opportunity created by e-commerce demand growing into the peak season. One such company, U.S.-based ShipHero, relies on its own fulfillment centers in the U.S. and third-party centers in combination with its own software for forward-planning and intelligent distribution across its network. The goal of ShipHero’s model was to reduce final B2C shipping distances and costs for its shipper customers; the company has been working with a growing number of new customers operating on the e-commerce platform Shopify who are looking for fulfillment services, founder Nicholas Daniel-Richard told Air Cargo World . Forward-stocking typically incurs storage costs at warehouses, which may then be exacerbated by final shipping costs of inventory to a customer if the distribution isn’t optimized. Regarding storage costs for warehousing, Daniel-Richard noted the importance of forward-stocking in preparation for increasing orders during the holiday season. Costs can be substantial for new entrants building their businesses. “One thing we’ve done specifically: We don’t charge for anything in our storage for the first 60 days, and then it’s first in first out,” said Daniel-Richard. “That’s really helped companies who are ramping up, they need that storage, but they don’t want to be penalized or charged for that season before the holiday season starts.” There and back again Reverse logistics needs for 2020 and the current peak season — a frequently overlooked aspect of e-commerce logistics — will likewise need unprecedented levels of capacity. Reverse logistics refers to returns of e-commerce purchases, and can cover services for retailers including inspection, repackaging and resale of returned products, as well as the refund and warranty management aspects of e-commerce sales. Reverse logistics and returns management are frequently outsourced by e-commerce companies to logistics providers, such as XPO Logistics. In March, XPO expanded its reverse logistics services in the United Kingdom by acquiring the majority of Kuehne + Nagel’s contract logistics operations there. In its Q3 earnings report, XPO noted that the e-commerce increase has made it more difficult for companies to handle both fulfillment and returns internally, providing an opportunity for third-party logistics companies to grow their services in those areas. New entrants, in particular, are often unprepared to manage their own reverse logistics, from both an operations and financial perspective, said ShipHero’s Daniel-Richard. In addition to its new retailers, he noted that brands such as Pier One or Dressbarn — a ShipHero customer — that have closed their physical stores for bankruptcy reorganization and reemerged as pure e-commerce sellers, are searching for logistics support with reverse logistics. ShipHero has addressed these concerns through partnerships with specialty companies in these spaces, Returnly and Happy Returns, for underwriting financial risks of returns and aggregating returns for processing and shipment to ShipHero warehouses. Retailers may be partnering with companies pursuing specialized reverse logistics, but many e-commerce returns in the U.S. will ultimately be handled by the major express companies and the U.S. Postal Service. UPS has not yet publicized its projections for a return peak in early 2021, but its forecast for the 2019 peak was for a 26% YoY, increase of 1.9 million returns on Jan. 2, 2020, which is peak return day. Retailer promotions are closely tied to heavy returns the week before Christmas as shoppers buy gifts early around promotions, according to UPS. As promotions run more frequently to entice e-commerce buyers amid the current economic downturn, the peak reverse logistics this year are likely to beat records — alongside other areas of e-commerce operations. However, with the time-sensitive nature of B2C shipments removed from the reverse journey, peak rates and surcharges are unlikely to persist through peak returns after Christmas.

Pandemic-fueled retail buoys 2020 peak season

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