It’s that time of year again. The supply chain industry is reading the numbers and making final projections and predictions for peak season 2024. Will it be stronger than anticipated? Weaker? Aligned with expectations? While anticipating what will transpire is a bit of a fool’s game, proper planning remains critical to efficiently capitalizing on this crucial period.
At the moment, importers are still weighing their options. It’s looking like peak will be slightly stronger than 2023. However, considering we all anticipated a softer market this year than what transpired, it’s a good bet that those who are nimble and poised to adapt quicky will be the real winners.
Start with what we know for certain. We know that inbound is slowly picking up. Inventory is flowing back in, with July proving to be the strongest month yet, though we’re still not quite at last year’s levels.
As volume is ramping up, we’re seeing fewer SKUs than before. Customers are becoming more targeted about the products with which they’re engaging. Gone are the random impulse buys at checkout; shoppers are sticking to their core items. They’re also remaining price sensitive, opting for cost over convenience. Many will choose a lower shipping price, even if it means shipping might take longer, and they’re prioritizing experiences over goods.
The ocean freight situation continues to be unstable, which will impact peak in a multitude of ways. Freight volume shifted to U.S. West Coast ports due to diversions away from the Red Sea and a possible International Longshoremen’s Association strike on the East Coast. According to the latest announcements from the Panama Canal Authority, the maximum authorized draft increased in mid-August, which represents a return to normal operating conditions. That will allow carriers to minimize transit through the Suez Canal and around the Cape of Good Hope for cargoes routed to the U.S. East Coast.
Vessel schedules have been severely impacted, though, deteriorating schedule reliability. Ports in Asia and Europe are still experiencing congestion as shipping volumes increase. This instability is leading to container shortages, as stock wasn’t prepared for the additional transit time involved in rerouting around the Cape of Good Hope. Additionally, as capacity remains below demand, ocean rates remain inordinately high. A decrease was anticipated during the first half of August, but spot levels on major trades are more than 200% higher compared with pre-pandemic levels.
Perhaps most critically, this holiday shopping season is abbreviated, shrinking from 31 to 26 days between Black Friday and Christmas. A shortened holiday season can have a significant impact on buying behavior.
What We Expect
Based on what we know about the current market, we can form educated expectations about what lies ahead for peak, though we’ll have a better indication by early October.
With ongoing turbulence in major global trade lanes, threats of strike from the ILA along the East Coast, and the recent rail strike in Canada (which will take several weeks to normalize), we expect volume shifts to the U.S. West Coast to continue. Those ports are not equipped for the influx of that much additional cargo. These challenges will have substantial implications on this year’s peak season, delaying shipments and driving up costs.
Rate volatility poses a significant concern for the ocean freight industry, and spot rates continue to increase due to limited capacity, with longer voyages further adding to costs. A normalization on the routings via the Suez Canal and Red Sea will eventually push rates down, as capacity will be higher than demand due to deliveries of bigger vessels and the new carrier landscape with alliances that will start Q1 2025.
Based on consumer price sensitivity, peak will not impact all retailers equally. Those pushing more expensive goods are anticipated to have a more challenging experience, and the apparel industry continues to face struggles amid economic difficulties. We’re also likely to see more in-store foot traffic this peak as opposed to online purchases, as experiences continue to win out over products. The errand will be the event. In addition, there’s growth in activity at Latin American shopping malls, a trend we expect to see mirrored in the U.S.
With the shorter shopping period, consumers who prioritize cost over convenience will face more pressure to buy, as retailers cut off free shipping promotions, employee discount sales and other deals earlier. As a result, many consumers will do their holiday shopping sooner in the season.
Some believe we’re seeing the beginning of freight recovery for the first time in two years. Projected increases in Q4 capacity suggest a softening of rates, which may bring some relief around peak. More likely is that the U.S. presidential election will impact purchasing behavior as well as the overall economy. It’s unclear exactly how this year’s election will end up impacting buyers, but this is an area to watch as it aligns with this year’s peak.
Many experts even expect that in the second half of 2024, consumer spending will start to rise. This will put a test on companies’ supply volumes. as it would be a major swing compared to the last several months.
How We Can Prepare
Flexibility and agility remain key. Control what you can (like early promotions) to offset what you can’t (like delays from port congestion). Early ship programs will help to relieve some of the pressure on the supply chain in a shorter shopping season. It’s important for retailers to remember they can help control their own peak seasons with marketing and promotional plans that drive consumer purchases through deals, free shipping and guaranteed delivery windows.
Most critical is constant communication with supply chain partners, especially given the dynamic nature of this year’s peak. By remaining in contact, all parties can prepare. Understand your transportation network and delivery modes, and brush off your contingency plans. Are your partners equipped to adapt? Those who have campus solutions offer more optionality and flexibility, should things need to ramp up. Stress-test your operations before peak, keeping in mind that volume will likely be frontloaded. Take one day’s worth of peak volume and flush it through your system. It’s better to see what’s not working during the stress test to course correct while you still have time, rather than during peak when there is no room for error.
Finally, while you’re preparing for peak, be mindful of the post-holiday period. How are you managing returns, and what’s behind your strategy? Depending on the product, many retailers are opting to let customers keep unwanted items instead of requiring them to ship the original back due to cost considerations. Solidify your returns policy and identify your partners quickly.
Peak will be upon us in a matter of weeks, and we’ll soon know how our preparations will play out. In the meantime, it’s not too late to make final adjustments to ensure that you’re setting yourself up for success during the most critical consumer sales period of the year.
Anthony Jordan is executive vice president and chief operating officer with GEODIS in Americas.
