Retail Brands Gear Up For Second ‘Shippageddon’

“Shippageddon” first entered the retail industry lexicon in late 2020, describing a conflation of global supply chain issues that led many brands and retailers to be under-stocked or otherwise unable to fulfill customer demand for purchases last year.

A year later, many of those issues have not been resolved, and there are new hazards to deal with. Retailers and brands are preparing for round two of Shippageddon. 

What happened last year

In 2020, Shippageddon was driven by several factors:

• Capacity problems with ​​last-mile delivery carriers. All major carriers implemented shipping quotas.  Many turned away new clients to keep a lid on demand.
• Amazon AMZN Prime Day delayed til Q4 of 2020, instead of the usual mid-year event, shifting more order volume into an already tight schedule. 
• Low freight capacity for retailers and brands to restock. 
• Increased demand for ecommerce that the entire fulfilment system was generally not ready for. 

The term Shippageddon was first coined in late 2020 on an episode of the retail podcast The Jason And Scot Show. ”We were talking about the likely e-commerce peak we expected from the holiday, on top of the e-commerce peak we were already seeing due to Covid-19, and we felt like retailers were likely to run into shipping capacity issues,” said the hosts of the show.

And the alarm that retail experts sounded did in fact bear out. Shoppers were indeed met with stock-outs, longer delivery timelines from all carriers, and less overall discounting ahead of the holidays.   

But the outlook doesn’t look much better for 2021. 

Freight Constraints

The price of shipping containers has skyrocketed in 2021, along with transit times. Mike Beckham, CEO of home products brand Simple Modern, posted analysis on Twitter showing how dramatically the company’s costs and transit times have increased from Q3 2019 to Q3 2021: an increase of 122% of price per shipping container and a 105% increase in transit time. 

Simple Modern is far from the only company with this experience. Salesforce CRM predicts that U.S. companies will spend $163B more on ocean freight in the second half of 2021 than they did in the second half of 2020 for these exact reasons, according to Rob Garf, Vice President and General Manager of Retail at Salesforce.

Last Mile Delivery Constraints

UPS says that delivery demand during the 2021 peak season will exceed capacity by 5 million packages per day, pointing at a major discrepancy between supply and demand for online shopping capacity.  Like last year, UPS and other last-mile carriers will impose surcharges and daily package limits on the largest shippers.

Brands and retailers will also face peak-season rate hikes from the USPS which (if granted) will be in force from October 3rd to December 26 this year.  This is in addition to the permanent price increases for First-Class mail and packages which came into effect on August 29. 

Amazon Warehouse Capacity Constraints

In 2020, many of my clients at Bobsled Marketing faced lengthy delays to get their inventory placed in Amazon warehouses and available for shoppers to purchase. Whether the brand was a 1st party supplier to Amazon or using the “Fulfillment by Amazon” program as a 3rd party seller, Amazon was often not placing purchase orders, not picking them up, or inbound shipments would take upwards of 3 weeks to unload once it arrived at an Amazon warehouse. 

This year, Amazon changed its methodology for calculating how much inventory a Seller can have at Amazon. The system uses factors like storage type (standard, oversize or clothing & footwear), the inventory performance across a sellers’ entire product catalog (an account-wide ‘Inventory Performance Index’) and in some cases, ASIN-level (SKU-level) performance. Several changes made throughout 2021 have made it hard for sellers to understand exactly what capacity they have available. And some sellers have been negatively affected by inventory storage limitations that have impacted their ability to keep items in-stock. I wrote about this in a post for Forbes in May:  Amazon Hobbles Merchants’ Prime Day Preparations With Inventory Restrictions

But any issues that Amazon Sellers are facing are merely downstream impacts from Amazon’s own crunched supply chain. With its huge share of ecommerce GMV, Amazon bore the brunt of capacity issues in 2020. There are major efforts underway to ramp up Amazon’s operating capabilities this year. When reached for comment on the issue of supply chain challenges, Amazon provided the following statement:

Since the start of the pandemic, we’ve invested more than $11.5 billion in COVID-19 related operating costs. We’ve increased square footage across our fulfillment and logistics network by 50%, opening dozens of new delivery stations and fulfillment centers around the world. We’ve hired over 400,000 employees in the biggest peacetime workforce ramp-up by any company in history. And we’ve spent more than $2.5 billion on pay incentives and bonuses.

How companies are responding

To counteract the conflation of negative supply chain factors, companies are investing in infrastructure and adapting their marketing approach.

• Amazon already owns a lot of their own supply chain capacity, and is shoring this up to reduce reliance on outside parties. Last week CNBC published a map of Amazon’s air fleet network across the US, showing that as a result of recent expansion, 70% of the U.S. population now lives within 100 miles of an Amazon Air AMZN airport.
• UPS is adding capacity ahead of peak season, including 2 million square feet of additional sorting space and more cargo aircraft. 
• Brands and retailers are increasing their prices to counteract increased costs in the supply chain. Salesforce’s Q2 Shopping Index indicates the average selling price in the retail sector rose 11 percent year-over-year in the same time period. They are also discounting less. Salesforce also found that average discount rates dropped to 17% in Q2 2021 compared to 20% in Q2 2020 as limited inventory and sustained consumer demand limited markdowns. Some retailers like online styling service Stitch Fix are diversifying their mix of parcel carriers, to counteract the issues the company faced last year with shipping delays and unexpected costs from higher carrier rates and surcharges. 

Despite these efforts, a jammed-up global supply chain is a tough problem to fix. The Suez shipping canal fiasco we witnessed in March 2021 helped to illustrate just how fragile the global supply chain can be – a cut-off shipping route, lack of shipping containers, carrier ships, or trucks – all have downstream impacts for the ability to procure and distribute consumer goods. It will be another year of simply muddling through the fourth quarter of 2021 for many companies.