INCREASED FREIGHT COSTS
The global logistics market is still reeling from the pandemic, and freight costs are expected to remain high in 2022. According to DHL, the shortage of freight capacity—both in the air and on the ocean—is one of the reasons for the high rates.2
Lockdown regulations paused the flow of shipments, leading to unprecedented clogging at ports and critical trading locations. This left brands and manufacturers without access to enough containers for their shipments, limiting their ability to get needed materials on time. As a result, consumers have been forced to wait longer for access to products. A report by the United Nations Conference on Trade and Development (UNCTAD) noted that surging shipping costs would increase consumer product prices by up to 10%.3
MATERIAL SHORTAGES & RISING PRICES
Companies are working to improve their response and forecasting to minimize the impact of raw material shortages. However, shortages are expected to continue this year, with materials like semiconductors, aluminum, food products, building materials, and plastics, in low supply across key markets. The Russia-Ukraine conflict is likely to exacerbate these shortages.4
Already, the conflict has caused the supply of sunflower oil, a key ingredient in many food products especially in Europe, to tighten.5 This, in turn, is putting pressure on supplies of other cooking oils like palm and canola oil. As a result of this and other supply chain issues, the World Bank expects food prices to rise by about 20% in 2022 and it expects prices to remain at “historically high levels through the end of 2024.”6
Ongoing shortages are likely to lengthen project lead times and impact product availability in different markets. For example, food manufacturing plants have had to reduce their operations due to labor constraints, impacting the availability and prices of certain food products. Using data and analytics while coordinating with suppliers can be a great way of minimizing such risks.
LABOR CONSTRAINTS
Waves of layoffs and resignations have heavily impacted the availability of labor. Pandemic lockdowns caused layoffs, while many other workers quit during the so-called “Great Resignation.” The labor shortage is expected to continue into 2022, causing inflationary pressure until a slowdown occurs or demand normalizes.7 At the same time, COVID-19 and its variants remain a pressure on key markets that supply the US, resulting in downstream effects.
In response, industries are exploring investments in supply chain technology, such as machine learning and artificial intelligence (AI), to improve their core processes. Companies are also adapting through smarter hiring and onboarding to deliver great employee experiences and packages.
LIMITED STORAGE SPACE
Due to supply chain issues, there has been a rush to stockpile raw materials and goods. This has put pressure on existing warehouse space and exacerbated a situation already crippled by slow processing times at ports and warehouses due to the pandemic.
Despite the limited warehouse space, many businesses still use a single central warehouse for distribution and fulfillment.8 Instead, brands can expand their networks by leveraging third-party logistics (3PL) providers. Exploring alternative delivery providers and strategies, as well as newer solutions like dark stores and micro-fulfillment centers, can be helpful. For example, on-demand services like Instacart and DoorDash can help streamline operations.
WHAT ELSE CAN BRANDS DO?
In addition to the solutions outlined above, brands can take other active measures to reduce their exposure to ongoing supply chain issues. According to Forrest Consulting’s Future of Commerce report, many brands are actively investing in solutions. These include increasing manufacturing capacity, increasing supply chain speed, improving collaboration with partners, and attempting to reduce supply chain costs.9
Some brands are also working to bring production back to the United States, a process also known as “onshoring” or “reshoring.” In addition to concerns about the supply chain and shipping, these initiatives also tie into corporate commitments to more sustainable operations, since bringing manufacturing back to the United States can reduce the pollution and fuel use associated with overseas production.10 However, experts expect that reshoring will be limited to, at least initially, products that require more complicated manufacturing processes.10
Working with eCommerce and omnichannel experts is another option to help reduce your brand’s exposure to supply chain issues. Teams like those at Compass Marketing utilize insights and analytics to help brands better forecast demand. They are also able to leverage deep relationships with key retailers, to help take some of the pressure off brands.
