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UPS and DOWNS in the Parcel World

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UPS and DOWNS in the Parcel World

The rise and fall of FedEx and UPS stock prices, and what it means for you

If you have been following UPS and FedEx Stock prices for the past 6 months, you have probably noticed some major differences in performance. During this period, UPS Stock has seen a decline of over 18%, while the FedEx stock price has increased by almost 20%. While you may think that these swings are only important for the stockholders of these respective companies, we feel that this is equally important for shippers.

To explain this, the first important question to ask is, what is driving these major changes? If you have been following the blogs that we have been putting out for the past few months, you probably have a good idea already. 

We had been monitoring and reporting on the UPS/Teamster negotiations that started back in April. The negotiations were quite contentious, and ended with UPS providing an offer that the Teamsters touted as “Historic”, and that will cost UPS $30 Billion over the life of the new five-year agreement. 

UPS leadership has publicly debated how much this new agreement will actually cost the company. However, regardless of how much, it is pretty obvious that it is going to increase their costs in a meaningful way. 

The chart below illustrates the performance of UPS Stock price over the past 6 months. As you can see there was a big drop in value following the kick-off of negotiations, most likely driven by the negative sentiment and risks associated with a potential strike by the Teamsters. 

The stock has continued to fall following the completion of negotiations, and has seen a steady decline since UPS reported Q2 earnings at the beginning of August. This UPS earnings report acknowledged the loss of volume due to customer concerns of the outcome of their negotiations with the Teamsters. UPS also lowered its revenue outlook for the year following the outcome of the new agreement.

For FedEx, there has been a steady uptick in their stock price. As you can see in the chart below, their stock has risen substantially during the same period. 

FedEx earnings reports have suggested that they have been successful in reducing costs and have solid plans to continue doing so. However, they have also acknowledged the fact that UPS/Teamsters negotiations have helped them gain market share. 

FedEx’s chief customer officer, Brie Carere, said “We onboarded new customers who valued our service, and were committed to a long-term partnership with FedEx,” she said on the company’s earnings call Wednesday. “As a result, we added approximately 400,000 in average daily volume by the end of the first quarter.” She then went on to say “My job is to make it very difficult for our primary competitor to win back that share.”

In case you didn’t catch it, the statement made by Ms. Carere should be the aha moment that explains why these fluctuations in stock prices are important to shippers! The bottom line is that both carriers have a need for volume right now. The economy is soft, which is having a negative impact on volume. UPS needs to recoup volumes lost due to Teamster contract negotiations, and FedEx has won volume from UPS that they don’t want to lose. Seems like the perfect storm for shippers. This suggests that carriers might be willing to get aggressive with pricing to protect and or grow their volumes.

So, now you are probably thinking that you need to call your respective UPS or FedEx rep to try to take advantage of this situation. Maybe you have been successful in the past with obtaining better rates and discounts directly from your carriers. Maybe you have built and used successful strategies in the past that resulted in cost reductions for your company. But before you pick up your phone to call your reps, there are some very important questions that you need to ask yourself.

  1. How well do you understand your own Parcel Data? Do you have the visibility that you need to understand your shipment characteristics and trends of your parcel spend? Are you relying on data/reporting that comes directly from the carrier to understand your volumes? (bad idea #1) 
  2. How do you know that you will be able to obtain the best rates possible from your carriers? What do you have to compare this to? Are you going to bench mark new offers against your own existing rates and discounts? (bad idea #2)
  3. Do you have the ability to completely analyze and determine the true impact of offers that you receive? Will your analysis pick up on discount details that you feel will not be impactful, but actually are? Are you going to take your carrier rep’s word for it when they tell you that their new offer is going to save you money?  (you guessed it- bad idea #3!)

Our long term experience tells us that instead of picking up the phone to call your carrier rep, you should first pick-up the phone to call us. Here’s why; 

  1. The proprietary analytical program/process that we have built along with our associated Auditing & Reporting portal allows for unmatched visibility and reporting. THIS WILL TRULY ALLOW YOU TO UNDERSTAND YOUR PARCEL VOLUMES AND SHIPPING CHARACTERISTICS!  
  2. Shippers have no way of knowing that they are receiving the best rates and discounts possible on their own. Do not take your carrier rep’s word for it.  ICC Logistics utilizes a vast database of over $9B/yr. in carrier data that allows for highly accurate benchmarking of rates and discounts. WE KNOW WHAT THE BEST RATES AND DISCOUNTS LOOK LIKE!
  3. Our analysis will provide a true and accurate picture of the impact of all carrier offers. We have protected many customers from accepting offers that carriers claim would reduce costs, and that would actually have had little impact or even increase costs. DON’T BE FOOLED BY SMOKE AND MIRRORS!

So if you are looking to enter into negotiations with your carriers from a position of power, it is imperative to partner with a company that understands the process. Market conditions suggest that now is the time to dust off your parcel carrier contracts, and take advantage of potential cost reductions. The Parcel market is ever changing, and the pendulum can quickly swing back the other way as capacity tightens. We are certain that our approach to negotiations will help shorten the timeline and result in the highest level of savings possible. So, be sure to reach out to us today to get things moving right away! 

 

UPS Announces (and Surprises) with GRI Announcement

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Following FedEx’s 2024 General Rate Increase Announcement on August 30th, we published an article that provided some details and insight to help shippers begin planning for the increased costs that this will drive. We had also expressed surprise that FedEx had announced an average GRI that was lower than last year. At the time that this article was released, UPS had not yet publicized their plans for their 2024 rate change. 

So, a lot of us were on the edge of our seats, wondering how UPS would react. They were put in a bit of a sticky situation given the fact that they needed to figure out a way to fund the expensive new Teamster agreement that just went in place. At the same time, they need to be sure to protect their crumbling market share. UPS has faced competitive pressure from FedEx, Amazon, LaserShip/ Ontrac and the slew of other delivery options that have popped up within the last few years. 

Many experts including ICC Logistics, were predicting record level increases for the Parcel shipping community. Some even predicted double digit increases! Well, it looks like we all received another major surprise. It looks like UPS has decided that they are not in a position to announce a higher GRI than FedEx. On Friday September 8th, UPS posted the following on their website. 

The following changes will be effective December 26, 2023. Previews will be available later.

The rates for UPS® Ground, UPS Air and International services will increase an average net 5.9%.

The list of ZIP Codes to which Area Surcharges apply will change.

The list of ZIP Codes aligned to certain zones will change

Once again we need to emphasize that the announced GRI is just an average, and that the actual impact will vary greatly depending on a shipper’s volume characteristics.

Also, we are certain that both carriers will find other creative ways to help ensure they protect and grow their profit margins. Our last article detailed how Parcel Carrier accessorial charges have been a sneaky way for them to drive rate increases that are higher than the GRI that they announce. We provided some important details and insight related to how Delivery Area Surcharges have been added and changed over time. 

It looks like we hit the nail on the head in relation to Delivery Area Surcharges, as the UPS announcement spells out that the list of Zip Codes that DAS applies to will change! We are willing to bet the farm that the change will not result in less zip codes receiving DAS charges!

It’s also interesting that UPS announced that there will be a change in the alignment of zip codes and zones. We had seen this announced in the past. However, we were not able to identify any major changes in the zone charts that we studied. We will definitely be taking a closer look at this area for the 2024 rate increase impact, as this could have a major impact on shippers. 

For example, currently 5 Lbs. UPS Ground Commercial package going to Zone 4 carries a published rate of $14.60. If UPS adjusted their zone chart, and caused this same package to be classified as a Zone 5 package, the cost would jump to $15.85, an 8.6% increase! This is obviously far above the announced 5.9% GRI. We are not saying that UPS or FedEx will make these kind of changes. However, the fact that UPS has announced that there will be changes to zones has one wondering. 

In addition to the GRI announcement, UPS also provided details related to their Peak Demand, and Holiday Peak surcharges for the remainder of 2023 and into 2024. Besides big increases in Additional Handling and Large Package Surcharges (which will increase 6-7% compared to Peak Demand surcharges from 2022), they also provided specifics of rates for high volume Holiday Peak shippers (A Demand Surcharge will apply to certain UPS Air Residential, UPS Ground Residential and UPS SurePost packages, for customers who are billed for more than 20,000 packages during any week following October 2022). 

Below is the chart that high volume shippers will use to determine their peak demand surcharges. 

 

October 29, 2023 until January 13, 2024
Service Level>105% to 125% of Baseline Volume>125% to 150% of Baseline Volume>150% to 200% of Baseline Volume>200% to 300% of Baseline Volume>300% to 400% of Baseline Volume>400% of Baseline Volume
UPS SurePost$1.35 Per Package$1.85 Per Package$2.15 Per Package$2.60 Per Package$4.45 Per Package$6.40 Per Package
UPS Ground Residential$1.35 Per Package$1.85 Per Package$2.15 Per Package$2.60 Per Package$4.45 Per Package$6.40 Per Package
UPS Next Day Air Residential$2.40 Per Package$2.90 Per Package$3.20 Per Package$3.65 Per Package$5.50 Per Package$7.50 Per Package
All Other UPS Air Residential$2.40 Per Package$2.90 Per Package$3.20 Per Package$3.65 Per Package$5.50 Per Package$7.50 Per Package

We compared this chart to the one that UPS provided for the 2022 Holiday Peak Season. The increase in rates for these volume demand surcharges increased as much as 8% for some tiers! 

So what does this all mean? First of all, we are sticking to our guns, and reiterating that the impact of the 2024 Parcel Carrier rate increase will be higher than 5.9% for many. We are already seeing this in many areas as described above, and expect to continue to see this as the specifics of 2024 rates trickle in from both UPS and FedEx. 

The bottom line is that if you are using the announced 5.9% GRI’s as a basis to budget for 2024, you are probably making a big mistake.  The impact of the increases could be record level for some, depending on which levers the carriers decide to pull! Also, don’t think that you are protected from major increases if you have a Rate Cap in place in your agreements. Rate Caps typically only apply to base rates, so accessorial increases can have a major impact on your actual costs.

Finally, we cannot stress enough the importance of partnering with companies like ICC Logistics, that can help you determine the exact impact of these rate changes. It is crucial to fully analyze your current agreements, pricing structures, and actual data to determine true impact. Without this approach, you are leaving yourself open to surprises that can have a major negative impact on you and your companies’ profits.

FedEx Announces GRI Early

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Surprise Surprise!

Most people like a nice surprise, especially when it’s a good one! Yesterday, the parcel shipping world received a nice surprise.  FedEx provided an earlier than normal announcement of their General Rate Increase (GRI) for next year. Surprisingly some of the increases that they announced were less than those imposed last year. FedEx announced that their rates for Express and Ground Services will increase by 5.9% (on average) in 2024. While it is nice to hear that the increase for FedEx is lower than expected, this is certainly no reason for celebration! 

Last year the GRI for both FedEx and UPS came in at 6.9%. Many experts, including ICC Logistics, have been predicting record level increases for Parcel Carriers in 2024, driven by the expensive new UPS-Teamster contract. It has been reported that this new agreement will cost UPS $30B over the next five years.

Early speculators are saying that this move by FedEx is designed to put pressure on UPS and their profit margins. It is hard to say how UPS will react to this. One would expect that they did have plans to push through a rate increase designed to soften the blow of the higher costs associated with the new Teamster agreement. We had expected a GRI of at least 6.9% by UPS. But, due to this new pressure in the market, they may be forced to mirror the 5.9% increases announced by FedEx, and find some other way to improve profit margins.

If UPS decides to go this route and match the FedEx 2024 GRI amount, they will need to find creative ways to improve margins. Let’s face it, UPS and FedEx are no strangers to creative pricing. First of all, it’s important to point out again that the announced GRI’s are just average increases. The actual impact of the rate increases will vary greatly for shippers. Many factors will drive the bottom line increases that a shipper will experience including average weight and zone of packages, package dimensions, increases in accessorial rates, as well as potential changes to accessorial rules and/ or the introduction of new accessorial fees. Also, the verbiage and elements of carrier agreements can affect the bottom line impact for shippers. 

Carriers have been using accessorials as a creative way to improve profitability for a long time. Many years ago, the Delivery Area Surcharge (DAS) was introduced by UPS and FedEx for certain zip codes. Then new categories of delivery surcharges were added, accompanied with higher charges. First the Extended Delivery Area surcharge (EDAS) came into play. In more recent years (2022 to be exact) – the Remote Area surcharge was created. This sneaky little surcharge carries a price tag of $13.05 per package in 2023 for UPS, and is typically not covered by discounting that shippers may have in place for DAS or EDAS. UPS published charges for DAS and EDAS are $5.30 and $7.15 in 2023. 

On top of this, both carriers usually make adjustments to the zip codes that these Delivery surcharges apply to. Our analysis has shown that UPS has continued to move DAS Zip Codes to the EDAS category and EDAS into the Remote Area Surcharge category.  In 2023 UPS had approximately 400 more Remote Area Surcharge zips listed than they did in 2022. We are speculating that this practice will continue in 2024 and beyond. 

Both Carriers have made changes to rules that govern Dimensional Weight as well as Additional Handling Charges over time. In 2015 both carries lowered their Dimensional Weight Factors from 166 to 139, which increased costs for most shippers. Both have also introduced new rules that apply to Additional Handling surcharges. For example, in 2016 both carriers lowered the length of packages (longest side) from 60 inches to 48 inches before the surcharge applied. New categories of Additional Handling have been added over time, and now include extra charges for specific weight, combined length and girth, length, width, as well as packaging. Published charges for Additional Handling vary from $16.50 to $34.50 for UPS and $16.50 to $36.00 for FedEx (per package). 

There are also many interesting rules that govern situations where carriers reserve the right to charge Additional Handling Fees. UPS has one listed in their Service Guide under rules for the application of Additional Handling for Packaging. It states that they can charge an Additional Handling Charge for Packaging for “Any article that is encased in a soft-sided pack (e.g., poly bags and bubble mailers) that exceeds 18 inches along its longest side or 14 inches along its second-longest side or 6 inches in height.” We know that many shippers use these larger size poly bags to ship their product (especially those that ship clothing/ garments). However, up until this point, we have not seen any wide scale enforcement of this rule. Not sure why, but this could be a creative way to help bolster profits.

So, our point with all of this is that it really doesn’t matter if UPS matches the FedEx GRI or not. The bottom line is that 5.9% is still a hefty increase!  On top of this, it is only an average, and the impact could be much greater for shippers, especially when the carriers start playing the “Smoke and Mirrors” games that they play. It is obvious that carriers have many levers that they can pull to help improve their profits. Many of these are not so obvious to the average shipper. 

The big questions are “What is the specific impact to you, the Shipper?” and “Do you have contracts that can help shield you from potential rate increases that can damage your bottom line?” We would expect that you don’t want to be unpleasantly surprised by unplanned/ unexpected increases in costs in 2024. ICC Logistics has a long history of delighting customers by driving significant cost savings that they didn’t know existed. Please reach out to us today to ensure that the surprise that you experience with your 2024 carrier rate increase impact is a good one! 

And, as an added bonus, ICC, (which we have done for decades now), will be publishing FedEx and UPS Rate Comparison Charts comparing 2023 rates, with the new 2024 rates just as soon as the revised rates are officially published by FedEx and UPS. Be on the lookout for this incredibly valuable information.  

Delayed Shipments Continue!

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One of the ramifications of working for a large integrated carrier for as long as I did, is that friends and family often came to me when they were having problems receiving something they ordered or sent.  So, besides managing relationships with some of UPS’s largest customers, in my spare time I was often asked for help or advice with personal shipments (Grandma’s lost shipment of cookies, critical parts needed for a friend’s business, daughter’s prom dress that had not arrived etc.). So, I was not surprised last night when my wife told me about a problem she was having with something that she had ordered on Black Friday.

She read the following email to me that she had received after inquiring about her order (names changed to protect the innocent).

Hey there Mary,

Thanks for reaching out. I’m sorry the fulfillment timeline might not work out this time. We know that many customers are experiencing an extreme delay in receiving their orders. No excuse will help now, but the truth is that we moved to a new (we thought more robust) fulfillment partner. They have failed to deliver, big time. We are rearranging inventory to another warehouse as we speak.

To make it up to you, we have refunded you in full to the original payment method for your order. We will still get this order shipped as soon as we can, and we expect more updates to come regarding your order status by end of week. You should’ve received an email confirmation of the refund as well. We apologize for the screw up, but thanks so much for ordering with us! We hope you can enjoy that order on us.

If you need anything further, please let me know! I’m happy to help.

Have a great day,

Elizabeth

This email totally struck a nerve, because I had just written a blog about delayed deliveries last week! This situation totally touched on the 3 points that I had written about; Honesty, Communication, & Choice! 

On the positive side, this shipper did an excellent job with the Honesty perspective. They acknowledged and explained the cause for the delay, and explained what they were doing to rectify the situation. They also kept the email positive and upbeat! 

But what did they do wrong here?  There are a couple major things that could have been done better. First and foremost is Communication. Obviously they knew about the problems they were having with their Fulfillment process. They could have done some damage control and proactively notified my wife of the delay. After all, she did place this order three weeks ago!

 I am certain that my wife would have felt a lot better if she had been made aware of the problem/ situation. Instead she was left wondering, and was forced to reach out to the company to inquire about her order. As described in my previous blog, she experienced the “salt rubbed in the wound” effect! Also, the shipper may have avoided the need to provide a refund if they had just provided a proactive update. 

However, the big miss here is with Choice! The company did acknowledge that they misjudged the abilities of the 3PL they had chosen to perform their Fulfillment. So, it is apparent that they did not perform the proper due diligence to determine this vendor’s capabilities. 

I cannot say that I blame the folks that made the decision to partner with a particular vendor. I realize that the E-Commerce Warehousing & Fulfillment space is large and complex. I do not envy today’s Supply Chain Professional that needs to juggle the daily demands of their jobs, and then make crucial decisions regarding choosing a 3PL that is equipped to support their company’s needs. Properly vetting out and managing a 3PL can be a full time job in itself!

The message that I would deliver to the folks that made this poor decision, as well as all others in the Supply Chain Logistics space is that there is no need to take on the daunting task of choosing the right 3PL by yourself. ICC Logistics has the expertise, knowledge and resources available to help you make the right Choices. I can assure you that your company will not need to send out painful emails like the one provided above if you allow ICC to assist you with choosing the right Fulfillment partner. At the same time, you may be able to give me one less order fulfillment issue that I need to deal with in my personal time. Thanks in advance for your help with this! 

Delayed Orders Are on the Rise

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“Your order has been delayed.” These are 5 words that e-commerce consumers hate to hear or see!

Anyone that has ever experienced a delay in receiving something they ordered knows how frustrating this can be. Unfortunately, in todays challenged Supply Chain environment, delays have become all too common.

There are a large variety of things contributing to a spike in the time it is taking for consumers to receive their orders these days. These include challenges with obtaining raw materials, Covid driven shut downs, worker shortages, Port congestion, cost reduction efforts, along with Carrier capacity issues to name just a few.

Given the wide range of supply chain challenges, shippers are left wondering what they can do to minimize the pain, suffering and anxiety that their customers are feeling due to the uncertainty that exists in the world.  After all you can only control what is controllable.

So what are the controllable factors that a shipper should consider to help drive customer loyalty?

  1. Honesty- It is extremely important to always be honest and upfront with customers. For example; If you don’t have the item in stock and can’t provide delivery to the customer within a reasonable amount of time, don’t take the order. Or at the very least, let the customer know when they can expect delivery prior to check-out, and allow them to decide if they can wait.

There is nothing worse than allowing a customer to use their valuable time to enter an order, only to receive later notification that the order could not be fulfilled.  This can contribute to customers losing trust in your company/brand.

It is important that shippers are honest with customers throughout the purchase and post purchase process. After all, Honesty builds Trust, Trust builds Loyalty, and Loyalty leads to more Sales!

  1. Communication- Once you have the order, it is now up to your Fulfillment operation and Carriers to get the order moving and delivered within the expected time frame. Unfortunately, these two things are not completely controllable. So, the bottom line is that you need to have a solid communication process in place, to inform your customer of these unanticipated delays.

As mentioned above, customers hate hearing that their order has been delayed. However, they hate not hearing anything even more! There is nothing worse than having a customer reach out to you proactively with a “Where is my order” called a (WISMO call). Having an order delayed without explanation or notification to the customer, it is like rubbing salt in a wound.

Shippers should consider implementing an internal process that notifies customers when there are delays prior to shipping. If/ when this occurs, the customer should be quickly notified. A simple email that informs the customer of the unanticipated delay will take a lot of pain out of the process. The message should be honest, apologetic, but upbeat. For example, the message could read:

“Sorry, but we were caught off guard with the popularity of our products. This has caused a delay in our ability to ship your order today. We know that you are excited about receiving your order, so our operations team is making every effort to get this shipped ASAP. We apologize for this delay, and are committed to insuring there are no further delays. Once again we apologize for any inconvenience and disappointment that this is causing for you. “

Or

“We tried our best to get your order out today, however we were not able to do so. We have prioritized your order and have confirmed that it will go out tomorrow. We know that you are anxious to receive our product, so we apologize for the frustration this may cause. Please be assured that we value your business and are equally disappointed that we could not get it shipped today.”

Similarly, Shippers need to have a process in place to inform customers when there are carrier driven delays. It is important for shippers to differentiate between Fulfillment vs Carrier delays. It has become somewhat of a common practice for shippers to point all delays towards their Carriers. Shippers often provide a tracking number to a customer even before the order has left their Distribution Center. So, customers often assume that all delays are due to carrier issues.

This is a great way to deflect away from your company. However, this could be equally damaging to the customer’s perception of your company/ brand. Customers are a lot more savvy these days. So, when they track a package in a carrier’s system and only see a “Label Created” event, it is likely that they will know that the shipper has not handed the package over to the carrier. So, failing to be honest regarding the nature of the delay, could be just as damaging as the delay itself. Furthermore, if the blame for delays is always passed onto the carrier, customers will be left thinking “Why do they use this carrier if there are constant delays?”

Implementing notifications for carrier delays should be an easy lift for most shippers if they are using the larger Integrated Carriers like FedEx and UPS. Both of these companies have off the shelf proactive notification products that are fairly easy to implement. Additionally, for shippers using a variety of carriers, regional carriers, or the USPS, there are a host of Post Purchase technology companies that can provide visibility and pro-active notification services. So, either way, it should be fairly simple to engage a process to inform customers when there are carrier delays. The cost to implement these processes often pays for itself due to the reduction of cost associated with the reduction in WISMO calls that this will drive.

When properly implemented, your customer will automatically receive notification of delays directly from your carriers. However, as an added step you may want to consider sending a direct communication from your company to acknowledge the issue and assure the customer that you are working on it. An email might read as follows;

“We notice that your order has been delayed due to an issue with our Carrier. Please be assured that we are working with them to help minimize this delay. We value your business and are committed to providing timely delivery for all of your orders. We apologize for the inconvenience that this may cause for you.”

  1. Choice – let’s face it. There are a lot of choices to make in the Supply Chain and Logistics world to help control the controllable. Shippers need to choose the right Fulfillment options, Carriers, and Technology to insure that they minimize issues. Shippers need to make the right decisions to help drive a best in class customer experience.

Questions that need to be answered include;

-Should we insource or outsource our Fulfillment operations?

-If outsourcing, who should we use?

-Where should our Distribution Center(s) be located?

-What carriers can contribute to the best customer experience?

-What technology should we use to help drive a best in class customer experience?

-How will we measure the effectiveness of the choices that we have made?

Surveys have shown that a negative customer experience is the reason 86% of consumers quit doing business with a company, and that good customer experiences lead 42% of consumers to purchase again. So it is imperative that shippers make the right decisions to minimize problems, and to have the right processes in place when problems do occur.

We know that making the right decisions can be a daunting task for shippers given the complex web of companies that exist in the Supply Chain & Logistics space. Thankfully there are companies that have a great deal of experience and insight that can help shippers make the right choices.

Please reach out to ICC Logistics to find out how we can help drive a successful Customer growth and acquisition strategy, and contribute to your company’s success.

 

Supply Chain Disruptions to Continue

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Why Preparation is Key and 6 Tips to Help You Navigate What’s Next

In a recent blog post we addressed FedEx and their financial and delivery woes.  Today, we dive deeper into the Supply Chain to give us a glimpse into the future.  In an October 27, 2022 article, CSCMP, (Council of Supply Chain Management Professionals), quoted an SAP survey stating 52% of US-based senior business decision makers said their supply chains still needed “much improvement” and 49% expected these issues to last until the summer of 2023.

We certainly agree; between the political unrest in the world, a shortage of raw materials and rising fuel costs, supply chain disruptions will continue to be a major issue for companies and consumers.  Take the auto industry for example.  Without computer chips, they cannot deliver cars.  Combine that with the rising cost of pre-owned cars, prices are soaring and delivery times are lengthening.

Covid-19 created an absolute explosion of Business to Consumer shipments which UPS obviously capitalized on.

Another example is the housing market.  With limited inventory for sale, prices climbed 20-30% during the pandemic.  Buyers were paying as much as $100,000 over asking, with a line of buyers right behind them willing to meet the price.  You would think, with the limited inventory, new construction would be up, but the cost of raw materials and the availability of getting them has slowed the new housing market.  A friend recently ordered a new refrigerator and was told 10-12 week’s minimum before delivery.

And the supply chain shortages aren’t just about products, it’s people too.  With the “Great Resignation,” we continue to face a major labor shortage. Unemployment is low with more jobs than people and yet companies can’t find the right people for the jobs they are seeking to fill. This puts pressure on wages to rise and prices to increase, resulting in inflation, lower profits and ultimately workforce reductions.  Specifically add to these the shortage of drivers and we are living the perfect storm and a vicious cycle.

During this election cycle, the economy was the #1 concern for voters. The SAP survey highlighted a big concern for increased prices leading shoppers to reduce their planned holiday spending. But this might be what economists were aiming for, a slowing down of the economy with the aim of avoiding a recession.

What can Supply Chain Executives do?

  1. Build strong(er) relationships with your current suppliers
  2. Increase and Capitalize on your Spend Influence
  3. Modernize your procurement process (digital transformation)
  4. Improve your analytical and reporting capabilities
  5. Be agile and willing to change where needed (have contingency plans)
  6. Minimize Risk and Show Stability

As people shift further and further to online shopping, things like speed of delivery, product availability and price reductions will weigh heavily on their minds.  Shoppers see the only solution is to buy early so companies need to plan ahead.  Once the model of most companies, “Just in Time” is rapidly changing to “Just in Case.”  The fact is, those with inventory will ultimately get the sale.

In the end, we believe “Inventory will be King”. Shore up each segment of your supply chain and be prepared for a rough ride.  We realize our message is at odds with itself, increasing inventory while reducing costs is hard to do. It might be too late for this holiday season, so start building inventory now to prepare for future near-term sales tomorrow and through 2023.

The need to continually focus on the Big Picture is critical for success.  Plan properly; Execute flawlessly, validate continually, Modify when necessary.

Need help with your Big Picture?  Our Supply Chain and Logistics Executives are here to help your company achieve all of its goals.