2022 Sourcing Report

Page 38

on air freighting in a bid to circumvent shipping delays during the third quarter alone, and its spending on the effort totaled $450 million for the full year. Still, the Old Navy and Athleta parent incurred a net loss of $152 million, or 40 cents per share, estimating a $300-million quarterly sales miss due to inventory constraints. Athleticwear titans Nike and Adidas both invested heavily in air freight during the holiday season in an attempt to mitigate the impacts of supply chain slowdowns in Vietnam, while Amazon, eager to keep its shipping capabilities in its own hands, augmented its fleet of jets. The e-tailer stands to have 85 aircrafts in its arsenal by next year, and has even hired its own flight crews to bring more product over from China.

WHEN WILL THE SHIP RIGHT ITSELF? While U.S. port congestion is easing with the implementation of a 24/7 productivity framework and the threat of container dwell fees, greater efficiency is unlikely to lead to low prices for shippers, especially in the near term, Glick said. Rates remained extremely elevated at 8-9x the pre-pandemic norm, and goods being shipped from Asia to the West Coast of the U.S. averaged $14,924 per container—a 285-percent increase over the same period in 2020. “There will be, and there already has been, a bit of a dip” in container pricing, he added, which will take the heat off brands to spring for space on aircrafts. However, “the fundamental market structure has shifted, and [ocean] carriers are executing better price discipline.” A small group of competitors are operating with “a lot more data” than they have in the past, and carriers are now in a position to use those insights to maintain favorable profit margins. Gone are the days of glad-handing and

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striking backroom deals with clients, he explained. In line with the industry at large, carriers are adopting tech-heavy processes to manage all facets of business, from operations to pricing. “Instead of using relationship-driven salespeople, they are going to negotiate contracts from a place of data-driven information.” That newfound reliance on analytics is going to keep rates consistently higher than they were pre-pandemic, Glick said. “It’s a market shift that has nothing to do with Covid at all.” The overall uptick in pricing on freight stands to impact smaller shippers disproportionately. “The cost increases are not evenly distributed,” he added. Large shippers with huge volumes and matching industry clout are taking hits far less devastating than businesses looking to ship limited batches of product. “The very small shippers have paid significantly more, which is why you see anecdotal stories out there about $35,000 containers,” he said. “That’s how averages work—a large volume of companies are paying a lot more, and a small number of companies who have a lot of freight are paying a little bit more.” A lack of control over the variables is a key problem. Over the past year, brands have thrown money at the logistics problem in a harried bid to stock their shelves, but the strategy is simply unsustainable, Glick said. “It honestly doesn’t matter whether the time frame to get something from China to your warehouse is 45, 60 or 90 days,” he added. “What matters is that at the beginning of your product lifecycle, you know the answer.” Supply chain players will inevitably find their footing and settle into a “new normal,” he said—and hopefully over the course of the next year. “Will everything always be as consistent and cheap and fast as it was? No,” he added. “But as long as it’s predictable, it’s okay. People need certainty a lot more than they need efficiency.”

“Air freight is never the answer— it is always the last resort.” — Brian Glick, Chain.io