There’s no doubt that the economic conditions following the onset of the COVID-19 pandemic have been unprecedented: Never before have more global shortages, closures, and travel restrictions occurred simultaneously, devastating communities and companies alike. One such severe result of these events is the global supply chain disruption.
Yet, amidst this crisis, one line of business has managed to flourish: e-commerce businesses. According to the Census Bureau of the Department of Commerce, US B2C e-commerce sales for the third quarter of 2021 totaled over $200 billion. It’s anticipated that US e-commerce sales will surpass $1 trillion in 2022. With people doing all they could to avoid the risks of in-person shopping, yet still needing both necessities as well as products to satisfy their shopper’s cravings, consumers turned to e-commerce to order everything from groceries to cars.
E-Commerce Surge
According to recent analysis by the Adobe Digital Economy Index, the acceleration caused by the pandemic is likely here to stay, with the US tracking to hit $1 Trillion in online sales by the end of 2022. Now accustomed to the convenience of having their items delivered to their homes, and often just as easily returned, customers now find in-person retail to be far more of a novelty than a requirement. Consumers want their items quickly, and they don’t want to go out of their way to get them.
Despite this surge, the e-commerce market is not immune to the supply chain disruption rocking the rest of the market. But what caused these problems? And, more interestingly, how have e-commerce businesses managed to thrive in spite of them?
What’s Fueling Supply Chain Issues?
The “Just in Time” inventory model pioneered by Toyota has played a part in the breakdown of the supply chain. The Japanese car manufacturer introduced this technique to their vehicle manufacturing with great success: By only ordering supplies to arrive “Just in Time” for their needs, the auto dynamo was able to cut warehousing costs and reduce risk for overall improved margins. This method has been taken up by everyone from other automotive manufacturers to hospitals, restaurants, eCommerce sellers, and beyond. When supply is operating at prime capacity, this model is optimal.
When factories, especially those in East Asia where many production facilities are focused, shut down for the pandemic, this model had negative consequences.
Just in Time is not the only factor at play, however: Delivery breakdowns have also contributed to the global supply chain disruption. While the supply chain bottlenecks have been partially caused by insufficient stocks, in some cases, the matter of simply not being able to move goods along the supply chain has caused the hold up. While the trucking industry was already facing a 61,500 driver shortage pre-pandemic, that number grew by 30% as COVID-19 raged. The bipartisan infrastructure bill currently in the works aims to add 3,000 drives to those numbers by allowing those between the ages of 18-21 to drive tractor-trailers across state lines. Current laws only allow those over 21 years of age to do this, but it’s doubtful how much of a difference these young drivers can make in the face of such a daunting shortage.
Further fueling the global supply chain disruption, the trucker shortage has exacerbated the backlog at shipping ports across the world. North America’s largest shipping port in Los Angeles was facing a 200,000 container backlog in October of 2021, and conditions have shown no sign of easing up, even following White House guidance for the Port of Los Angeles to operate on a 24/7 schedule.
COVID-19 policies in China bring their ports to a dead stop in the wake of any local outbreak, crippling exports before they can even make it to the docks. In the UK, Brexit has caused a trucker shortage never seen in previous years, leaving containers stranded for weeks on end, unable to be moved by crews who do not exist. The price to send a 40-foot container from China to L.A. is now up to $17,377, ten times what it was pre-pandemic. The global supply chain disruption is truly that– Global in scope, and forced largely by these improbably shipping conditions.
The labor shortage isn’t just putting a pinch on the logistics industry, either: Workers are a tough commodity in almost every manual labor field.
The Impact of Consumer Trends
The global supply chain disruption is now further exacerbated by consumer trends coming out of the pandemic that were neither predicted nor adequately prepared for. As lockdowns eased, consumer demand hit the market with a ferocity that neither labor nor production were prepared for. After being locked down at home for long months, in some cases with supplemented income and limited options to spend it, consumers emerged ready to spend. The consumer price index jumped up by 6.2% due to this demand grating against inadequate supply– The largest jump we’ve seen in over 30 years. Yet even as prices soared, demand was there to meet them: FedEx saw a 10% rise in holiday package deliveries this season, setting a record for the carrier.
Is there an end in sight for the supply chain issues? According to a recent survey, 62% of consumers expect the supply chain disruption and the issues it has wrought to continue throughout 2022. While the economy-wide nature of this supply chain disruption has never been seen before, we have seen similar breakdowns in the past. Coffee drinkers may recall the cycle of crop losses in the early 2000s that temporarily caused instability in pricing, but as supply stabilized, so did the supply chain. The same can be said of egg shortages during the bird flu, and even toilet paper in the early pandemic. Producers responded to and resolved these challenges, said the White House, and stocks once again returned to normal levels. According to three Regional Federal Reserve banks, a survey of multiple manufacturers presented indices of delivery times at an all-time high, but future predicted times are about average. “Taken together, the data suggest that manufacturers anticipate current supply-chain issues will have abated within six months or so,” says the White House.
In the meantime, retailers are finding increasingly creative solutions to the problems at hand.
How Can E-Commerce Owners Deal with Supply-Chain Issues?
Packaging supplies, made from paper, plastic, and wood, have become steeply more expensive and difficult to come by. One solution? According to the New York Times, plastic pallets are easing the wood shortage. While plastic is more damaging to the environment, having pallets that can be reused and recycled can ease the input cost. Moreover, many brands are now feeling the pressure to cave to longstanding consumer demand and switch out their packaging for more sustainable, post-consumer supplies. Prior to the pandemic, these packages were often pricier, but supply chain disruption has caused these goods to be a more economical option for many.
While outsourced labor was once the cheapest way to produce goods quickly, skyrocketing shipping costs have turned the tables on an age-old model. Domestic, and in many cases, local manufacturing increases have helped many brands improve their stocks amid supply chain disruptions. 65% of retailers either established or expanded existing domestic manufacturing operations during the pandemic, circumventing supply bottlenecks at ports and reducing the need for in-demand trucker labor by simply making goods closer to their end destinations.
Statista reported in 2021 that consumers, when asked about the aspects they would change about the delivery of purchases online, nearly half (48 percent) of shoppers worldwide mentioned the speed. According to a 2020 survey, 65% of Americans expect online retailers to deliver their purchases in three days or less. When facing supply chain disruption, what are e-commerce retailers to do? The rise in e-commerce as the preferred method of buying for most shoppers has proposed as much of a solution as a dilemma, in this regard.
Traditionally, retail stores assessed their usefulness in terms of at the register sales in comparison to operational costs. Joe Preston, the CEO of New Balance, says brands are rethinking that model. As delivery times become a key metric for consumer satisfaction and wide distribution areas pose points of difficulty, storefronts are shifting from points of sale to hubs for distribution.
In addition to these creative solutions, there are a few key strategies that successful e-commerce businesses are employing to get around the supply chain disruption.
Visibility
Increasing visibility from beginning to end on all supply chains has been pivotal, especially for D2C-focused brands, according to Great Blue Yonder. Consumers want to know when they’ll get their products, so it’s important for e-commerce business owners to have a clear idea of that themselves. Build solid relationships with suppliers and shipping partners to ensure consistent communication along the way. Knowing when you will receive inventory allows for accurate predictions to consumers.
Micro-Fulfillment
Micro-fulfillment centers have also seen a massive surge in popularity amongst e-commerce retailers as a way to combat the long shipping times caused by supply chain disruption earlier in 2020 and 2021. Micro-fulfillment centers are, more or less, “micro” warehouses located in more densely populated urban centers to stock incredibly popular items for lightning-fast delivery. These centers are often heavily automated, allowing for streamlined customer processes and fast turnover of inventory. It’s an excellent solution for a brand with little or no brick-and-mortar presence to keep stock closer to consumers and to get that stock to them regardless of global supply chain disruptions.
For those e-commerce brands that are just starting out, the budget constraints of establishing these smaller centers have become a hurdle when it comes to competing with retail giants like Amazon. Enter: The micro-fulfillment 3PL. 3PLs, or Third-Party Logistics firms have always been popular options for e-commerce businesses. Utilizing 3PLs allows owners to cut warehousing costs and remove the stress of shipping management from their own teams. But 3PLs have had to change in response to the pandemic, too. Micro-fulfillment centers were once considered the standard for just grocery delivery, but now many 3PLs have begun incorporating them into their distribution networks. While it’s more costly to establish these centers, the long-term savings on last-mile delivery and labor more than make up for these front-end expenses.
The COVID-19 pandemic has changed the world in just a few short years: Businesses shut down, borders closed, and millions of people lost both livelihoods and their lives. The global supply chain disruption has been just one consequence of this debilitating pandemic, compounded by factors ranging from labor shortages to ships getting caught in canals.
But where insurmountable problems arose, humanity and the entrepreneurial spirit have found footholds to climb beyond these problems. Restructuring manufacturing and rethinking distribution have allowed e-commerce retailers to meet demand around these obstacles, and perhaps changed the way businesses think of the supply chain forever.