Consultant insight: How much longer will supply chain woes continue?

Retailers’ supply chains continue to face higher costs and longer lead times as retail sales remain healthy while transportation is strained across modes. The question facing retailers today is, how much longer will higher costs, longer lead times and strong retail sales continue? [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] “Based on what we know today, we are forecasting material impacts to the first half of 2022,” Urban Outfitter CFO David Bergman told analysts Nov. 2 during the company’s Q3 earnings call. Indeed, retailers expect higher costs, component shortages and delays to persist through at least the first half of 2022. Describing its supply chain as “volatile,” Bergman noted that the retailer is adjusting orders and shipping with its factory partners, logistics suppliers and wholesale customers to narrow and edit its spring and summer 2022 order book. Meanwhile, Sleep Number Corp. CEO Shelly Ibach was hopeful that supplies for its manufacturing of mattresses will improve next year from current levels while Steve Madden CEO Edward Rosenfeld told analysts that company executives are hopeful there will be some relief in transportation markets in 2022. Still, demand for more continues to grow. Year to date through September, U.S. retail sales, seasonally adjusted, are up 19.1% year over year. But, while demand grows, inventory levels are not keeping up. According to the U.S. Census Bureau, seasonally adjusted retail inventories increased 0.1% in August from July and were up 2.3% over August 2020. Retail sales, also seasonally adjusted, were up 1.0% in August from July and up 13.5% from August 2020. According to IHS Markit’s latest PMI analysis, firms expanded their input buying sharply in October. Companies attributed higher purchasing activity — which was actually the slowest pace in seven months — to efforts to build stocks amid greater new order inflows. “The rate of input cost inflation remained substantial at the start of the fourth quarter, as hikes in vendor prices and greater transportation surcharges pushed costs up,” IHS Markit noted in its report. “With the exception of August and September's record rises, the latest increase was the fastest since data collection began in May 2007. At the same time, firms continued to partially pass on higher costs to clients. The rate of charge inflation accelerated to the fastest on record.” The worst of the supply chain issues could be over even sooner than many folks expect. Jefferies analysts expect “shortages to intensify at the end of 2021 before demand shifts towards services,” according to Reuters . “This will allow supply chain bottlenecks to begin to clear in the first quarter of 2022 allowing for inventories to be rebuilt.” Meanwhile, a Citi analyst noted that “congestion issues may be past peak, with the potential for greater fluidity and volume on the horizon,” according to CNN . “This is evident in early signs of decongestion at ports in the U.S. and Asia." By this time next year, “supply chain woes will be a distant memory,” JPMorgan Chase CEO Jamie Dimon predicted during an October earnings call. “There's a very good chance that a year from now that we won't be talking about supply chains at all,” Dimon said. We’ll always be talking about supply chains, Mr. Dimon, but let’s hope the current woes will indeed be a distant memory a year from now. Once the congestion around supply chains eases, the concern will be managing the costs. Many retailers paid dearly to expedite freight deliveries. It’s doubtful all supply chain costs will decline, even if the current woes fade into memory. One lesson learned during the current disruption is how valuable logistics workers truly are, and the importance of compensating them. Another crucial lesson has been the importance of having a risk management plan before a crisis occurs. There’s certainly no way one can plan for a supply chain risk of COVID-19’s scale, but companies can certainly mitigate the potential costs and threats by diversifying suppliers, modes of transportation, and more.

Consultant insight: How much longer will supply chain woes continue?

AirBridgeCargo approved for lithium battery shipments of more than 35 kg ex-China

Airport operators move cargo off airport, prioritize growing workforce to avoid congestion

Related Posts

Lessors: 737-400 freighter replacement still years away

Boeing lowers annual world cargo growth forecast slightly to 3.5%

Air Canada expects to deliver strongest cargo revenue on record this month

Airport operators move cargo off airport, prioritize growing workforce to avoid congestion

Cargo Facts Free Newsletters

Cargo Facts Connect Podcast

Follow Us

Welcome Back!

Retrieve your password