Supply Chain Management, Transportation, On-Demand Logistics, Warehouse Solutions
As we continue to look at what 2023 might bring for manufacturers and retailers, logistic service providers (LSPs) and governments across two parts of the logistics sector - air freight and warehousing. The Bullwhip effect created by 2020’s lockdowns, 2021 consumer spending and continuing supply challenges have led to uninterrupted supply chain chaos. So how would this affect supply chains in 2023? Earlier in November we looked at the impact on sea freight and road transport. In sea freight, Covid lockdowns and huge spikes in volumes saw the cost of a transpacific 40” container peak at over $20,000. It’s now rapidly declining and sits near 2019 rates of around $3000. Road transport continues to experience a challenging time with numerous stories of layoffs and reduced rates, particularly in North America.
In the air freight sector, several factors continue to challenge the business. November and December are critical trading times for retailers globally, with the big holiday periods of Thanksgiving and Christmas supplemented with large promotional periods such as Black Friday and Single’s Day (11.11)
Retailers are continuing to clear excess inventories meaning the requirement to ship new stock is limited. Volumes at Cathay Pacific, once the fifth largest air freight carrier have dropped 36% vs pre Covid levels and 25% vs 2021. In addition, consumer confidence is waning in anticipation of a global recession and soaring energy bills. There’s also evidence that consumers are fatigued with constant promotions and losing confidence in the true savings of Black Friday and Single’s Day promotions.
As consumers battle soaring energy prices, carriers face ever increasing fuel bills. UPS is raising it’s fuel duty rate as prices continue to fluctuate significantly, further impacting the viability of air freight for retailers. Looking ahead at 2023, there’s not too much to be happy about. This extract from Logistics Update Africa provides a perfect synopsis: “The sector faces a bumpy ride as lower ocean costs and better schedule reliability from easing port congestion and available capacity may tempt some shippers to make a modal shift. Patrick Berglund, CEO of Xeneta, believes that increasing belly capacity, with easing travel restrictions, will be supplemented by the arrival of conversion and freighter orders placed during the air cargo peak. This will lead the air segment to join its ocean freight sibling in the overcapacity corner, with a negative impact on load factors and rates. Berglund underlines the complexity of challenges facing the industry with economic uncertainty, geopolitical concern (not just relating to Ukraine), ongoing industrial action on logistics chains, China's continued zero-Covid policy and the combination of weak demand, easing congestion and increased freight capacity.”
In warehousing, the picture is less clear. The Bullwhip effect hits warehousing last (just before retail) in the supply chain and retailers continue to clear excess stock, with many expecting to reduce pricing further post Black Friday sales. Going into 2023 many businesses are taking different approaches. As one of the world’s biggest retailers, many people will always look at what Amazon does as leading the market. In May 2022, Amazon announced they were looking to offload 10-30 million square feet of warehousing space – anywhere up to 15% of US capacity. CEO Andy Jassy stated they’re no longer chasing staff nor capacity – an incredible shift from 2021 when businesses were paying significant holiday period bonuses. Since then, Amazon’s outlook has not improved with layoffs across the conglomerate expected to continue into 2023. Conversely, there remains an intense shortage of warehousing space. In the UK, there is currently 2 month’s demand of vacant warehousing space. James Short, senior surveyor at Avison Young said: “Although national (UK) take-up levels year to date have fallen short of 2021’s total - 40.28 million sq ft - this has been driven not by the current economic climate but by a chronically undersupplied market. Availability of grade A space across the UK stands at 24 million sq ft, equating to only two months’ worth of supply based on demand of the last three years.” This is leading retailers to change their approach to fulfilment across their retail and industrial properties. The US retailer Macey’s is converting 1 million sq ft of retail space across 35 stores to support 2022’s holiday sales. With a mix of automated and manual warehousing solutions, Macey’s anticipate being able to fulfil orders more quickly and cheaper as they aim to right size their inventory. This is hot on the heels of Target and Walmart in the US and Boots, Marks & Spencer’s and many of the grocery multiples in the UK.
What could 2023 and the future look like?
At Value Chain Lab, we believe the wrong question is being asked. Current solutions focus on making today’s ways of working more environmentally friendly with two approaches taken:
- Move the problem – introducing regulations and limitations on when and where vehicles can operate
- Greenwash the problem – electrifying (or hydrogen, bio-diesel etc) makes the output greener, but doesn’t solve the problem itself – there is too much demand on the current infrastructure.
With the support of an Innovate UK grant, we’re embarking on a journey to provide a technology platform which tackles the root cause; a lack of collaborative planning that results in half-empty logistics assets producing unnecessary costs, emissions and congestion. Through our use of proprietary LMCA algorithms (Load Matching Capacity Allocation) we will break the linear management of supply chains to create a network of networks which delivers logistics’ optimisation in near real time and improved profitability, high service levels and environmental improvements.
If you’d like to find out more about our FLOX platform and take part in Beta trials, reach out to email@example.com to find out more.