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Transportation Capacity Crunch Challenges Retailers in Run-up to Holidays

Retailers are gearing up for the busiest time of the year – the holiday season – but despite efforts to move inventory quickly and get it into the hands of consumers, the current transportation capacity crunch is taking a toll.

Over the last quarter, we’ve seen many big players – from grocers and home improvement retailers to department stores – report higher transportation costs which are severely eating into profit, in some cases cleaving full percentage points off already pressured margins.

With U.S. retailers increasing inventory from Asia to cater to growing consumer demand and to avoid any potential tariff impact, larger volumes of goods are pushing up freight costs. Furthermore, the challenges in the U.S. trucking market – due to the ongoing talent shortage and the introduction of the ELD regulation – means that transportation costs are being pushed up too. Some retailers are paying up to ten times more than the regular rate on some of their routes.

With truck manufacturers struggling to keep pace with demand, and talent and regulations constraining the supply, retailers continue to face challenges in securing capacity even at a premium directly impacting both their top and bottom line. It’s forcing them to find alternative modes of transportation or face the reality of paying higher prices to move inventory from port to stores (or the burden of passing on costs to consumers).

Many retailers that once ordered stock for the holiday season three to four months in advance began planning much earlier in the year. The risk of doing so is that inventory is sitting around for longer in distribution centers and warehouses – an expensive luxury.

Furthermore, some retailers will find themselves in a position where they do not have the “right product” that’s going to fly off the shelves during the busy period due to early ordering, leaving customers disappointed and retailers with an abundance of stock that will need to be heavily discounted to get shifted.

The lack of agility caused by the crunch is also likely to impact the delivery of goods to consumers. With shoppers increasingly buying goods online, particularly around the holidays, many retailers will be unable to deliver on their shipping promises or record on-time performance risking customer experience and trust.

Retailers are rethinking their operational strategies to overcome the challenging market conditions and improve competitiveness by taking more ownership of the process where they can:

1. Continue optimizing shipments: Coordinating transportation routing with merchants and distribution center processing schedules to optimize shipment prioritization. Transporting products based on business needs relies on creating visibility into distribution center requirements and merchant product mix.

2. Bring more freight operations in-house: Building some internal capacity reduces the risk of outsourced services. This is difficult for many smaller retailers, so we expect to see new collaboration in this space to help drive efficiency.

3. Leveraging new modes of transportation: More retailers are turning towards intermodal shipments as an alternative, which has an impact on the product sourcing calendar and can challenge flexibility.

As the market conditions look to evolve, savvy retailers will find new ways to cut the ties that bind their operational agility and in turn regain their competitiveness.

Jill Standish, is senior managing director and global retail lead, Accenture. Frank Layo, is managing director, Kurt Salmon, part of Accenture Strategy. 
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