Assessing the e-commerce supply chain as sales, imports grow

Editor’s note: Vertical Voices focuses on specific verticals within the supply chain, highlighting the latest trends and news. It appears on the fourth Monday of each month. This month, we are looking at e-commerce. If you are interested in future topics, you can see a full list of upcoming topics on our Editorial Calendar.

Consumers are still buying and retailers are responding. At the same time, available capacity on ocean containers is allowing more brands to bring in merchandise a little ahead of schedule this year, according to Kraig Foreman, DHL Supply Chain’s president of e-commerce.

Foreman tells Supply Chain Management Review that customers are utilizing the excess cargo space to build up their buffer stock now that inventory levels have normalized.

“Organizations are trying to get inventory in a little early this year,  and they have the ability to get inventory in early this year because capacity is down,” he says. “By bringing it in a little early and avoiding that surge in inventory, you can pick and choose your [freight rate] price point.”

The Census Bureau reported May retail sales increased 0.1% on a seasonally adjusted basis month-over-month and climbed 2.3% on an unadjusted basis year-over-year. That compared with 0.2% month-over-month decrease and an increase of 2.7% year-over-year in April.

The National Retail Federation said May core retail sales were up 0.3% seasonally adjusted month-over-month and up 2.9% unadjusted year-over-year. Core retail sales were up 3.5% year-over-year for the first five months of the year, NRF said. The organization expects 2024 retail sales to grow between 2.5% and 3.5% over 2023.

The latest Global Port Tracker, released by the NRF and Hackett Associates last week, found that monthly inbound cargo volume is expected to reach its highest levels in two years this summer.

“Consumers are continuing to spend more than last year, and retailers are stocking up to meet demand, especially as we head into peak shipping season,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “The high level of imports expected over the next several months is an encouraging sign that retailers are confident in strong sales throughout the remainder of the year. Unfortunately, retailers are also facing supply chain challenges again, this time with congestion at overseas ports that are affecting operations and shipping rates.”

Changes to peak season

Part of the growth of inbound container shipments is due to a shift of what constitutes “peak season,” says Hackett Associates founder Ben Hackett.

“Imports of containerized goods at U.S. ports are booming, with particularly strong growth on the West Coast,” Hackett said. “In the last couple of years, we have witnessed a flattened peak season that has stretched out the volume of imports over extra months versus the strong, consolidated surge seen in the past. Reasons range from retailers restocking following strong sales after the pandemic to trying to get ahead of increased tariffs on goods from China set to take effect in August and ensuring sufficient inventories for the holiday season amid strong consumer demand.”

That aligns with Foreman’s insight of brands looking to ensure they have the product they need in country to avoid a repeat of shortages during the Covid years. The downside, he says, is that brands are spending a bit more time guessing on the right merchandise mix.

“The one challenge to that is they have to make decisions much earlier as to what is ‘cool’ and what is going to sell well,” Foreman notes. “That’s the risk for them and the way they combat that risk is getting it in at [lower freight rates].”

Fulfillment technology trends

The advent of fast-fashion at lower price points and a push for more technology deployment in fulfillment facilities are pressuring e-commerce supply chains, but Foreman sees cost savings opportunity, particularly around the deployment of the right technologies.

“In fulfillment operations, it is becoming more important to have flexibility but still have the efficiency and effectiveness that comes with automation and robotics,” he says. “You are really seeing the trend to drive robotics into operations and increase efficiency.”

Beyond automation, Foreman expects artificial intelligence to assist brands in better locating inventory and a push to generate and analyze greater amounts of data. Part of that is due to AI, which is creating a “better rhythm inside buildings” to more effectively manage flow.

“As an order comes into the fulfillment center you have to pick it; you have to pack it; and you have to ship it,” Foreman notes. “The idea is you need to have a rate of flow that is balanced across those functions in order to have an effectiveness in getting the product outside the building. In e-commerce, consumers have outsourced the job of shopping. They used to walk around a store [and find an item, now fulfillment does that]. Technology is allowing us to manage that rate of flow much better than we could before manually.”

2024’s big challenges

Among the challenges Foreman identifies in the e-commerce space is lower volumes than what retailers would like to see. While retail sales continue growing, they are at levels below where retailers would like, he says. The upside is that shipping rates have remained flat or even decreased due to the excess capacity, although that may be turning a bit as volumes increase.

Foreman says the other big concern is that much of e-commerce’s growth this year is attributed to inflation. He does expect e-commerce to grow about 8.5% this year (it grew about 8% last year, which was the slowest growth rate since 2009). A return to growth rates of 10% to 11% are expected, but there is some uncertainty as to when those rates will arrive.

“That’s why robotics and AI is so important—so we can build more flexibility into our customers’ networks,” Foreman says. “Retail and e-commerce, but especially e-commerce, is further ahead of other industries when it comes to automation and robotics out of necessity. We had to do that. The types of automation are different. Full-pallet movement is limited in e-commerce. We live in the unit and parcel level and when you talk about lipstick, that is an intimate transaction and having robotics help with that [is a significant advantage].”

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