How should retailers adapt their supply chain to the 'new normal'?

Since the global pandemic, resilience has become the go-to word for retailers when it comes to adapting to change in the market. 

The ability to plan around delays in shipping, manage margins through seesawing freight rates and maintain availability through uncertain demand are now table stakes for competing in an economy which has stubbornly resisted any attempt to return to any version of ‘normal’. 

In practice, the new normal may well be ‘no normal’. Or at least not on a sustained basis. This can be seen in the performance of markets in the US and UK in the first half of 2024, and the new ways that the supply chains have been tested in response. 

The headline news remains positive – global growth is predicted to be 3.2% in 2024, while retail sales in the US and EU are expected to remain stable. Meanwhile, global volume is projected to increase by 5-6%, with demand rising rapidly at an estimated 15.0% in 2024. However, the networks that service demand remain subject to the ups and downs of the weather, geopolitics and labour, to name but a few.

Here we’ll look at the factors driving demand and the context that retailers have to contend with in H2 2024, as well as how supply chain strategies can adapt.

What do retailers need to know about demand and growth in 2024?

Western economies have been showing green shoots this year, after a long-waged battle against economic headwinds, particularly when it comes to inflation. With reports now putting both US and UK inflation at a three-year low, one would hope that consumers would now be freer to spend. 

Activity from retailers would seem to support this, with Sea Intelligence reporting that US retailers’ inventories are above trend, meaning that inventories have grown beyond what current sales levels would typically require, in addition to robust spending in H1.  

Ports across the world have seen robust activity this year, with vast majority of ports registering large volume gains in H1 2024: 

• Growth averaged 7% for the top 30 ports, with Los Angeles/Long Beach, Shenzhen and Beibu Gulf the biggest winners.
• China handled an all-time high of 162 MTEU in the 6-month period 
• The world’s largest port Shanghai is on track to breach 50 MTEU for the first time in 2024 

Meanwhile China’s exports grew in August by a surprisingly robust 8.7% (in dollar terms) year on year, and up from 7% growth in July.

However, weaker recent economic data such as US job figures could be a warning of a slowdown to come. 

• The UK has seen economic activity largely flatlining in the last two months of reported figures, while the upcoming budget from a cash-strapped Labour government brings additional uncertainty. 
• The US election, with candidates offering starkly different policies regarding trade and prices could also act as a dampener. 
• A recent report from former Italian prime minister Mario Draghi has called for drastic measures to avert economic stagnation.
  

For retailers wondering how to manage their stock and campaigns throughout the second half of the year, the outlook is mixed at best – while there are opportunities to grow and more liquidity available to consumers as businesses, shippers will need to keep a close eye on demand and content with the ongoing volatility in the freight market. 

The slings and arrows of supply chain disruption

While global volume growth paints a rosy picture from some perspectives, the reality of day-to-day supply chain management remains challenging, with risks arising from all corners.

The knock on effects of the Red Sea crisis

Over six months into the Red Sea crisis, the container shipping industry continues to grapple with significant disruptions. Sea Intelligence reports an 85% drop in the average number of deep-sea port calls in 2024 compared to pre-crisis levels. Port calls reduced from over 200 per month to under 40 in the first half of 2024.

Rerouting has also put major pressure on ports that have picked up the pressure, particularly in Singapore where congestion has been an ongoing issue, while Columbo originally cashed in on the transhipment volumes before hitting the same capacity and equipment crunches that have become common in the region.  

Disruption on the Indian subcontinent

The growing importance of the region for global supply chains, with strong manufacturing and shipping capacity, has been stretched by the structural issues in equipment supply, labour and  politics that are hampering  local ambitions to compete on the scale of China and more established port infrastructures. 

India and Bangladesh have seen significant disruption due to a combination of political unrest and natural disasters, while congestion that started in the Far East spread to India in recent months.

US labour issues

While US port volumes have been soaring, the details tell a more nuanced story. 

Laden imports across the East Coast ports grew by an average of 4.5% in 2024- Q2, compared to a growth of 1.3% across the West Coast ports. This can be attributed to fears of a potential US East Coast port strike on October 1st,  shifting volume flows towards the West Coast in Q3.

Demand in September remains healthy, potentially due to importers anticipating changes in customs regulations after the US elections.

Should we see a strike on the US East Coast from October, the impacts will be hard to ignore. Sea Intelligence explains that for every day of strike, it might well take at least 4-5 days to clear a backlog of equipment and shipments, meaning that even a short strike could have a long-tail of pain for shippers.

Capacity and rates remain strongly coupled

Throughout the uncertainty, carriers have shown themselves increasingly adept at adapting in ways that protect their rates and market share. 

Over the past year, weekly capacity volatility has increased, primarily because carriers are struggling to maintain consistent services. In week 36, capacity on the Asia-Europe route hit a record high of 286,000 TEUs, boosted by the addition of extra loaders. However, by the end of the month, it had dropped to 200,000 TEUs due to a mix of structural and temporary blank sailings following Golden Week. A similar pattern is observed on the Transpacific route, though the fluctuations around the Golden Week period are less pronounced.

After a period of a more ambiguous alliance strategy, we are also seeing new partnerships take shape to consolidate the positions and specialties of various providers, such as Ocean Network Express, HMM and Yang Ming Marine Transportation signalling their ongoing mission to cooperate closely under name Premier Alliance.  This alliance will continue to cover major East-West trade lanes, including Asia-North America, Asia-Europe, and Asia-Middle East. 

A notable development is the new slot exchange agreement between the Premier Alliance and MSC on the Asia-Europe route, giving them a wider scope of services and port of destinations.

How retailers should remain resilient?

Delays and blanked sailings are likely to continue as long as the Red Sea crisis does, and beyond, and carriers have shown they have the means and skills to manage rates and capacity as needed. 

Shippers may not be able to bank on easily available space and low rates – and with the economic situation still variable in its specifics, the ability to monitor, react to and meet demand as it emerges will be key.

• Shortening demand forecasting cycles: With consumer and economic data changing fast, revising and updating demand forecasts will be key. This may also mean ordering on a more regular basis to avoid under or overstocking on key SKUs.
• Building for change: While potential delays may make higher stock levels seem attractive, a change in consumer or business demand could leave shippers with working capital and valuable warehouse space tied up for too long. Businesses need the ability to flex inbound supply, not just buffer it.
• Partner for agility: Just as carriers are combining their strengths to add new abilities to their networks, shippers can do the same by working with a freight partner that enables agile planning, real-time inventory management and data-driven cost strategies. That starts with reliable network data and extends to processes and experts that support your team.

Zencargo is the supply chain partner for the world’s fastest-growing businesses, helping retail leaders plan, implement and revise their logistics strategies in line with the changing market. With a global network of experts, real-time supply chain data through our platform and bespoke solutions built around your needs, we can support you at every step of your business.

To find out more, book a free consultation with one of our experts today.