6 Essential Factors to Consider for Successful Peak Planning in 2021
No peak season is the same. Supply chain professionals know this. Whether in sourcing and manufacturing, fulfillment and distribution, or first mile, middle mile, or final mile logistics, we supply chain professionals face uncertainty and difficult decisions with every year. This will almost certainly be the case when planning for peak season 2021, as we discern each riddle and try to solve them one by one.
The six essential factors peak planning professionals must consider this year include:
- consumer confidence
- economic shutdowns
- Inventory, and
This season will undoubtedly pose immense challenges for supply chain professionals and making the right decisions regarding peak logistics planning this season is more critical than ever.
The effects of COVID-19 continue to rattle the logistics world as we progress through our planning cycles and approach the peak season. The already rapid transition that was taking place from B2B to B2C accelerated during the economic lockdowns of 2020 and continues into this year. More time at home shifted consumer spending behavior from travel and services to the online purchase of goods. As shelter in place orders took hold around the country at the beginning of the pandemic, the economy predictably shrunk, but as the summer and fall of 2020 evolved, the economy transitioned to variable levels of recovery. We have witnessed a continuation of economic recovery as 2021 unfolds. The question facing logistics planners this peak season is will the economic growth continue, and with what demands on additional resources and capacity?
Ensuring a successful peak season freight execution plan has always depended on gathering the best data and business intelligence available, conducting a comprehensive analysis of that information, and then making the best decisions accordingly. Once a freight execution plan is devised, the flawless execution of that plan is essential. A successful peak also means being flexible as conditions change. It also means engaging thoughtful and experienced freight transportation providers to meet the increased first mile, middle mile, and last mile peak volumes.
The Conference Board’s measurement of the state of mind of consumers, the consumer confidence index, was relatively unchanged in July at 192.1, up from 128.9 in June, and following five straight months of gains. The University of Michigan’s Consumer Sentiment readings substantiate The Conference Board’s results.
Lynn Franco, The Conference Board’s Senior Director of Economic Indicators, said “Consumer confidence was flat in July but remains at its highest level since February 2020.” Franco went on to say that “Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve.” The Conference Board’s position as of July was that consumer spending should continue to support robust economic growth in the second half of 2021. It remains to be seen whether the late July and early August concerns about rising SARS-CoV-2 Delta variant case rates will affect the current trajectory of the CCI.
An additional outlook was presented in mid-June by Bank of America CEO Brian Moynihan. In a CNBC interview, Moynihan said that consumer spending was 20% higher at that point in 2021 versus where it was at the mid-year point in 2019. Moynihan conceded that stimulus money was one factor in the spending numbers, which are based on transaction volumes across Bank of America’s credit and debit cards, and the Zelle payment network.
Personal income measurements are inconclusive for effects on other economic indicators in the short term. May personal income decreased 2% at a monthly rate. The decrease in personal income was attributed to declines in pandemic-related assistance programs.
In late July e-commerce giant Amazon warned in their quarter 2 earnings report that their core e-commerce business was slowing due to Covid-19 vaccines becoming more widely available and consumers returning to traditional brick-and-mortar stores. UPS’s quarter 2 report set guidance going forward slightly below Wall Street expectations. Will consumers truly shift a portion of their spending back to stores aligning with Amazon’s prediction of slowing e-commerce volumes, but still resulting in overall continued consumption? Only time will tell.
All considered, analysts’ crystal balls are somewhat murky about peak volumes, but prudence would suggest giving an edge to the heavier side as the best approach to preparation.
Labor is another matter. The Bureau of Labor Statistics reported in April that job openings had risen to an unprecedented 9.3 million. Headlines state that employers are having difficulty finding enough workers to hire. Contrary to the outlook of many economists as the economy reopened, a lot of people are not returning to work. Work-life balance and greater flexibility in working conditions are one of the reported considerations. Working remotely “worked”, and many professionals have decided that they may not return to the office if demanded by their employer. They are shopping their talents and contributions on their own terms, not on employers’ terms. For some workers, childcare responsibilities and lack of available options are taking a toll on their ability to return to work. Some workers are concerned about virus exposure, and others have decided to leverage their skills and bargain for a new job with more pay. Workers have bargaining power and the motivation to use it. In many states, the subject of continued unemployment benefits is the wild card.
The costs of fuel are always at play in logistics and transportation. This year and its upcoming peak season are no exception. Data reported by the U.S. Energy Information Administration show that the average prices for gasoline and diesel fuel have hit their highest level in almost seven years, up around 40% since January. Some of this increase would be expected considering the opening of the economy from last year’s mandated lockdowns and increased travel this year. However, attempting to read the tea leaves to predict what happens after this summer’s travel season is tricky. Analysts generally see the fuel price rate of increase slowing down but continuing to creep up. Logistics planners preparing cost estimates for peak will react accordingly.
The news about increased infection rates and the high transmissibility of the Delta variant has resulted in shifting guidance from the Centers for Disease Control and Prevention, including recommended universal masking indoors in areas with high COVID-19 infection rates. The impact the growing case rates of the Delta variant will have on local economies remains to be seen. On the one hand, the Amazon warning that shoppers were returning to brick-and-mortar retail stores may be tempered as consumers reconsider their shopping behavior. Shopping volumes may likely return to e-commerce, and the dynamics of the peak season may shift. If these concerns diminish over the next few months, then the retail peak season could very well be a mixture of 2019 and 2020’s fall peaks. The planning for peak amongst shippers, third-party logistics providers, and those of us in the freight transportation sector will be interesting as the weeks play out toward fall with the Delta variant and rising case rates once again dealing us a wild card.
Shippers may face inventory shortages as peak season unfolds. It’s generally accepted that peak shipping season usually starts in mid-August and continues to build to a crescendo between Thanksgiving and the late December holiday season. This period is prime time for retailers, increasing demand across multiple markets, as retailers begin building inventory for back-to-school shopping and the holiday season.
Looming over the horizon are continued backlogs of inbound freight at United States ports. In late July the Marine Exchange of Southern California reported near record highs in delays at the ports of Los Angeles and Long Beach. There were thirty-three inbound ships loaded with freight anchored off the coast waiting for a spot to open for unloading. The two ports account for about one-third of freight imported into the country and have experienced severe backups and congestion for months. Kip Louttit, executive director of the Marine Exchange of Southern California, said that “The two ports are facing more congestion than ever. The normal number of container ships at anchor is between zero and one,” in comments to Business Insider. “Part of the problem is the ships are double or triple the size of the ships we were seeing 10 to 15 years ago,” Louttit continued. “They take longer to unload. You need more trucks, more trains, more warehouses to put the cargo.”
Despite efforts to reroute container ships to other ports, the availability of inbound freight inventory that retailers and other importing shippers are depending on to satisfy consumer demand during peak may continue to be a concern. If the volumes but also the congestion problems continue to grow, and the demand for capacity in trucks, trains, and warehouses escalate, costs could rise. Logistics and freight transportation planners will be required to carefully consider contingency planning.
As always, weather on a local, regional, and even national level will have to be considered by peak logistics planners. We have historical weather data that will be inputted into planning. But weather – and its effects on transportation and freight delivery on-time service, the availability of staff for logistics operations, and the effect on consumers – is always a wild card.
Peak freight seasons are always unique. A particular tactic that worked last year may not work this year, as different variables in the marketplace present themselves. Peak logistics planners rely on historical data, previously successful strategies, and tried and true processes as starting points. Current market situations and forecasts are added into the equation. The potential best-case, middle-case, and worst-case scenarios are also considered. Eventually, all of us arrive at our best and most attainable peak plans.
A successful peak season discussion includes:
- Developing a plan for peak freight market conditions
- Executing the peak season plan but remaining flexible as conditions improve or worsen
- Reviewing the capabilities of your freight providers and aiming high
- Looking for freight providers to bring into your operations and counting on their expertise to partner with you in meeting the needs of your customers during peak
As we head into peak season 2021, it’s obvious that speed and reliable performance in freight transportation and delivery is of utmost importance and concern for shippers. With time and capacity tight, customers’ expectations are higher than ever. ECA, A Delivery Industry Alliance, recommends that shippers work with a wide variety of high-quality carriers to assure the trucking capacity needed to meet the unique demands of this year’s peak freight season. At the annual ECA Marketplace hundreds of shippers and carriers meet in fifteen minute one-to-one sessions over two days, forging lasting relationships.