As we pen this posting with one week remaining before Thanksgiving, Black Friday and Cyber Monday online shopping holidays occurring, Supply Chain Matters focuses on added realities for consumer goods and retail supply chain teams.

 

Logistics and Transportation

Among the major U.S. West Coast ports of Los Angeles and Long Beach, a reality as of yesterday is that 81 vessels remain anchored offshore to gain an open berth for processing.

Despite the good intentions of political leaders, port authority officials and labor unions, the reality of 7 by 24 round the clock operations remains elusive for a number of inherent reasons. They boil down to conflicting stakeholder interests and a lack of logistics synchronization. Yesterday, port officials indicated that the most significant problem is no yard storage capacity for available or interim container storage. Ports are additionally overwhelmed with empty containers and short of specific carrier truck hauling chassis. While plans to secure added yard storage outside of the ports, and to marshal rescue vessels to haul away empty containers is being made, it is not going to help support customer fulfillment over the coming weeks.

It is now a question of air freight, available trucking and priority logistics to hopefully position any remaining holiday fulfillment goods into customer fulfillment centers.

 

Indications from Major Retailers

Major retailers Walmart, Target, and Home Depot each reported financial performance results this week that provided further indications.

Walmart reported that comparable sales from U.S. stores and digital channels operating for at least twelve months increased 9.2 percent for the October ending quarter. Year-over-year online sales rose 8 percent, from a base where the pandemic drove large numbers of online consumers in Q3 of last year. Of certain interest by our readers, U.S. inventory levels rose 11.5 percent in the quarter in “preparation for an expected strong holiday season.” That is extraordinary, and a reinforcement that a major strategy for retailers was indeed to move inventory in earlier.

CEO Doug McMillon’s commentary indicated that in the latest quarter, the retailer gained market share in grocery, and despite higher rates of inflation, the company will execute its longtime strategy of undercutting competitors on price to garner added market share.

Walmart CFO Brett Briggs indicated to analysts: “Three years ago, if we would have said our inventory is up 11 percent, I would have not been very happy, but now we called it out in a headline because it shows we are ready for the holidays.”

Indeed, 2021 brings new dimensions of just-in-case inventory management among major retailers.

Target exceeded analyst’s expectations in reporting a sales increase of 13 percent in the latest quarter. CEO Brain Cornell indicated that the retailer is absorbing some of the highest cost increases, rather than passing them on to consumers. Total revenues increased 13 percent, while same day services sales reported grew more than 200 percent in a year-over-year basis. The retailer has nearly 18 percent more inventory in-hand than the year-ago quarter.

Home Depot’s comparable total sales rose 6.1 percent for the October ending quarter, while total sales increased 8.8 percent. Online sales increased 8 percent on a year-over-year basis. CFO Richard McPhail indicated to The Wall street Journal that the home improvement retailer’s significant physical store footprint and shipment volumes enhanced abilities to buffer rate increases among carriers and trucking firms. Inventory levels for this retailer have increase 27.4 percent.

General and industry media has already amplified Home Depot, Target and Walmart’s abilities to actually charter their own dedicated container vessels to move inventory more expeditiously. Twitter postings this week highlighted that one of chartered Walmart vessels managed to enter a U.S. West Coast port this week. Target has indicated that it has concentrated on night operations to move freight from U.S. West Coast ports.

In a prior Supply Chain Matters posting, we specifically highlighted Amazon’s holiday quarter preparations, including an enhanced emphasis on one-day and same-day fulfillment.

 

Reader Takeaways

Some of our takeaways in assessing transportation and major retail player preparedness were actually scooped by The Wall Street Journal’s Heard on the Street column today.

Major retailers are ready and stocked-up for the surge, potentially more so than forecasted sales volumes. The WSJ calculated that Walmart and Target combined have amassed nearly $8 billion in added inventory, exceeding analyst sales expectations of $7 billion for this holiday quarter. From our view, that reinforces our prior perception that when all the dust settles, there may be an excess inventory situation by the first quarter of next year.

Major retailers are geared-up to seize market share by boosting inventories, holding price levels lower than cost inflation, and in attracting needed seasonal workers with added bonuses and incentives. However, how this pans out in holiday discount promotions is another matter. We anticipate discounts will be offset by higher pricing on other associated goods. These retailers are already running early promotions. This will unfortunately come at the expense of other broad based and specialty retailers, especially small and medium businesses still struggling to garner holiday inventories to sell. Customer loyalty will prove to be a big differentiator.

The latest collective sales data clearly indicates that consumers remain wedded to online shopping and buying actions. That will favor major retailers but test parcel carriers with volume surge challenges in the coming weeks. Imposed shipping deadlines or temporary volume suspensions will loom large.

By the notion of financial and operational results thus far, the influence and momentum of major retailers will likely prevail. Not so for transportation and logistics services providers. They unfortunately, will garner the implications of the notions of: “Be careful of what you sow in the market.”

Indeed, we are of the view that when the dust settles, there will be reassessment, not only for existing global wide component and production sourcing strategies, but of the ability of global supply chain services providers piling on with excessive rate increases or market power.

 

Bob Ferrari

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