eCommerce may have seen its fair share of intriguing developments in 2021. But nowhere were those developments felt more acutely than in the snags resulting from global supply chains.
Supply chain issues have been predicted by analysts for decades, owing to the relative fragility of models currently in place as well as increasing demands on global production. And 2020 proved to be the year in which those predictions came partially true.
But as the world adjusts to the "new normal", few could have been prepared for the aftershocks both the pandemic as well as consumer demand enabled.
Not least of all being the digital retail sector.
What's at Stake in the Global Supply Chain Crisis
More than $245 billion was spent online in the US during Q4 of 2020, with a large percentage of that number being concentrated around the holidays. That's close to $1 for every $5 spent on physical retail as a whole during that same period, an increase of over 32 percent from the previous year.
As impressive as those figures might be, they pale in comparison to the estimated $4 Trillion in losses suffered as a result of disruption in the global supply chain last year. While numerous factors ranging from labor shortages to shutdowns at major ports may have led to the present supply chain crisis, it couldn't have come at a worse time.
But it's not just the vulnerability of the global supply chain that has analysts and consumers cautious during this holiday season.
Inflation and the eCommerce Surge
It's not just the pandemic that's driving the surge in digital commerce. The demand for global production in an increasingly interconnected global economy has been one key factor behind the spike in online sales that tends to be overlooked in the eCommerce arena.
Nor are supply chain issues the least of concerns for many Americans. With an expected rate of rising inflation reaching 3.4 percent in 2021, more consumers are left with little choice other than to limit discretionary spending. In response, many small businesses are also limiting their own production and distribution channels rather than competing amid price spikes and rising advertising costs.
Yet while retail sales during the holidays were recently projected at over $1 trillion in the US for 2021, the actual cost of retail goods is expected to rise by an additional $223 billion. While millions of Americans may consider holiday spending to be a non-discretionary expense, both inventory management hurdles and household budgeting may result in necessary limitations on gift-giving this holiday season — a sobering thought for retailers and consumers alike.
Materials, Supply Deficit, and Consumer Demand
The events of 2020 may have sparked an unprecedented surge in eCommerce, with ten years' worth of growth during the first three months alone. But as purchases increased, so did the actual physical cost of raw materials.
While over $2 trillion was received in part by US consumers during the first round of the federal stimulus package, the subsequent demand driven by additional disposable income has constrained supplies enormously.
China's Manufacturing Output
The month of June saw a 5.4 percent consumer price increase across all categories, with goods from suppliers outpacing consumer spending. While material costs are predicted to increase by as much as an additional 10% by the end of 2021, China in particular is facing the strain due to potential restrictions on the production and import of raw goods.
As a result, limited output and temporary shutdowns have surged across the nation in spite of a reported 137 percent growth in manufacturing profits during 2020. Yet the relative scarcity of raw materials hasn't quelled global interest in Chinese goods, which saw a five-year high of 300,000 units exported during September of last year.
The cost of empty shipping containers from China to Long Beach reached an all-time high of over $20,000 per container in September 2021. But the spike in shipping fees won't just affect sellers this year. It just might make consumers reconsider their holiday spending altogether.
Feeling the Crunch: Delivery, Spending, and the 2021 Holiday Season
According to recent data from Salesforce, the average selling price of nonessential consumer goods increased by 11 percent during Q2 2021. Yet despite a projected discretionary spending decrease of $16 billion in the US this year, consumers are expected to increase their online purchases by nearly 18 percent in 2021, with Black Friday alone predicted to top $17 billion in sales.
Under any other circumstances, the projected increase in consumer demand this holiday season would be encouraging for most retailers. But predictions are never set in stone. What is certain this holiday season will be the increase in shipping rates.
US companies are expected to spend three times the amount for ocean freight delivery this year, adding $163 billion to the already skyrocketing fees for international commercial shipping.
Nor is the spike isolated to international marine transportation. As early as January, both FedEx and UPS announced an increase in delivery rates for high-volume customers, leaving many online sellers with little choice but to raise prices to meet the subsequent charges — a perilous tightrope walk in a retail environment where 75% of consumers view free shipping as a necessity, not a luxury.
The Implications of Supply Chain Disruption on eCommerce
Unfortunately, the direct impact of lengthier and more expensive delivery and production methods on digital retail can't be understated.
Inventory Management: Just in Time?
Inventory management in eCommerce has by and large been predicated on “Just in Time” (JIT) strategies, where processes of production and manufacturing are initiated by both current and predicted sales volume.
It's a model that has served both retailers as well as shipping companies. In a typical year, forecasts for production tend to remain relatively consistent, allowing for an accurate schedule of fulfillment and delivery.
But the past 18 months have been anything but typical. Before 2020, JIT was a strategy that proved more than sufficient for eCommerce. So long as peaks and ebbs in sales traffic remained reliable, inventory supplies and delivery could be accurately predicted, based on both historical performance and necessity.
But in 2021, it's a strategy that demands reevaluation. An unpredictable world demands an agile response. And JIT may no longer be sufficient to meet consumer demands.
Reimagining the Future for Supply Chains
2020 proved neither reasonable nor consistent. And unfortunately for consumers and retailers alike, there is no quick-fix solution.
The aftereffects of the past two years aren't just affecting eCommerce. The global economy as a whole is being transformed in ways no one could have successfully predicted even five years ago.
Supply chains may need to be reimagined to adapt to this disruption, but so will merchant delivery methods. As will consumer demands. The line between production and purchase is becoming increasingly shorter—and friction is unavoidable.
The online shopper of 2023 is likely to be radically different from the average online customer in 2021. That's largely because the very nature of online retail itself is amorphous and constantly evolving.
Until both manufacturers and logistics providers move towards more innovative methods capable of sustaining the unparalleled growth rate of eCommerce, both spending and growth in both sectors will be constrained. Growth may be a continual process, but the bottom line remains the same.
And the bottom line for customers is never about the process. It's about the product.
Color More Lines can manage your eCommerce account efficiently, maximizing the strategic growth of your business in an ever-changing world. Find out more at Color More Lines.