‘We have redefined normal’: Experts predict when and how the supply chain crisis will end

Boaz, whose company provides retail businesses with air freight and expedited ground freight services, went on to say that the amount of e-commerce demand brought on by Covid may not slow down for a few years to come. So realistically, the current crisis won’t be fixed within a few months, said Boaz. 

“We have 90 ships currently waiting off the coast to be unloaded. However, the country is already short about 40 million square feet of warehouse space to begin with,” Boaz said. “If you add the 30 million square feet of warehouse space needed to unload those 90 ships, that’s a deficit of 70 million.” Add in the ongoing truck driver shortage, “it’s going to probably be a year before they’re able to see any sort of normalcy.”

Solutions come at a premium

There are some short-term solutions that brands can adopt to circumvent current supply chain issues. But they’re much more expensive — which is a hard pill for brands and retailers to swallow as everything is getting more expensive.

Take the price of freight containers. Before Covid-19 hit, the average rate was about $3,000 per container, but is now somewhere around $20,000. “I believe the prices may return to $10,000 in mid-to-late 2022, but we’ll never see $3,000 per container ever again,” Boaz said. 

Some brands like Peloton have turned to transporting more goods via air freight. But while air cargo is considered faster and more reliable than ocean freight, it is, again, much more expensive. On average, a medium-sized 2,000 pound container going from Shenzhen to Los Angeles costs about $1,500 by ocean. Meanwhile the same cargo costs $8,000- plus via air. That makes these solutions out of the question for many smaller or bootstrapped brands. Peloton, for example, said in October that it has invested over $100 million in air freight and expedited ocean freight.

Long-term, experts say that brands should also be prepared to spend money building out more redundancies.

“As a retailer or manufacturer, do they need to look at other options for future shipping needs? Do they start sourcing from different countries?” said Boaz, who predicts more companies will be moving away from China and other overseas production hubs. Furthermore, more retail brands could start looking at a mix between ocean and air cargo to expedite shipments, he said.

“We have, of course, redefined normal,” said Jay Camillo, global operating model effectiveness Leader at EY. In his opinion, the retail industry will likely see the rise of what he calls “resilient supply chains,” in terms of physical networks. “We’ll see ‘omnishore’ manufacturing closer to customers, with redundancies and fewer single points of failure for non-security sensitive goods,” he explained. 

Camillo also predicted more companies will front-load products to avoid out-of-stocks. “Scarred from the past year, we should also look out for businesses being more ‘inventory heavy,’” he said.

Furthermore, investing in in-house production and fulfillment is quickly becoming a priority for even emerging startups, who in the past might have relied on co-packers and 3PLs in the early stage. CPG brand Egglife, for instance, opened its own manufacturing plant and is expanding it to meet demand, the company’s chief sales officer Ross Lipari recently told Modern Retail.

Even with all the solutions and workarounds, Camillo said that there are more elements that can either slow or speed up the supply chain running smoothly. Camillo pointed to weather-related events like the Texas deep freeze, droughts in Taiwan and fires on the West Coast — all of which effected raw material availability and production. Then there are government policies to consider — both pre and post-Covid — that are restricting trade and investment. These include import and export tariffs, Brexit and other future cross-board restrictions, Camillo said.

Zeke Ziliak, global vp of transportation and logistics industries at e-commerce solutions provider PROS, whose clients include HP and Siemens, said the question of “when” challenges will subside is still unclear.  

Still, Ziliak is hopeful the high demand will eventually subside as consumers ease up on purchases and help prices deflate. “Supply and demand and the economy does tend to self-regulate,” he said. 

Brands take action

Still, brands and retailers aren’t waiting around for conditions to improve. The supply chain challenges of the past two years have led some brands to permanently alter how and where they manufacture. 

Sustainable footwear brand Della Terra was founded in 2020 and launched its first line in June. Founder Emily Landsman told Modern Retail that the onset of the supply chain crisis influenced her manufacturing and fulfillment decisions in the first year. For example, instead of ordering and holding stock for its wholesale business, Della Terra is launching shop-in-shops where customers can try on samples at boutiques. Della Terra then dropships orders to customers, with the boutique taking a 50% cut of the sale. 

Due to the manufacturing delays the company experienced in the pre-launch phase, Landsman said she also took up a pre-order model on newer lines. This entails Della Terra taking customers’ orders about three months before a line is produced and shipped from its Brazilian factory. Della Terra is currently accepting pre-orders on its spring line, which will be shipping to customers in March 2022.

“For a long time, brands have been stuck in production cycles that don’t serve their business, ” said Landsman. 

Jacob Kellner, owner of office furniture brand CavilUSA, said that in November the company decided to move production out of Asia and to Brazil for the foreseeable future. 

“The past few years were already hard for us since the trade tariffs kicked in,” Kellner explained. But with the addition of the long manufacturing windows and port bottlenecks, Kellner said South America makes the most sense. “With Brazilian manufacturing, we went from nine-month-long waits to six-week turnarounds,” he said. 

While the supply chain crisis has created seemingly endless short-term headaches for brands, Kellner said it may prove to be a good thing for brands and retailers. “If anything, this is a good time for us [businesses] to seek new solutions and become less reliant on the options we were stuck with over the years,” Kellner said.