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08/26/2022

Peak Season: Meeting Holiday Demands Amid Stressed Supply Chain

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Spencer Shute
Spencer Shute, senior consultant, Proxima

Many shippers and manufacturers have started to work on their supply chains a little bit better to get inventory over to the U.S. sooner, as planning for peak season is already well underway.

Retailers may be looking to do big closeout deals soon on seasonal products that were over-ordered because of concern about supply chain delays.  

Retailers will have discounts, but it will  be interesting to see how deep the discounts go this year, given that inflation, material, and labor costs are up. The overall raw materials in many sectors have increased, so their production costs have increased as well.

It's a little bit of a mixed bag in terms of how much they can offer at a discount and how big it will be. It may be about the same in terms of percentage, but the overall price point could still be higher compared to previous years, given inflation.

We will start to see some sales that are incentivizing consumers to buy now as opposed to just one all-day long sale or long discounts on certain products or extended sales. We will likely see shorter time frames that do encourage consumers to buy much faster as opposed to waiting for multiple deals that come across.

Retailers may want to try to start freeing up some inventory space by starting to offer discounts sooner to try to get some of these things to move. With the realization that peak shipping rates are going to be more expensive, if retailers can get the product moving ahead of time while offering a better discount and paying less shipping and freeing up some warehousing, it’s definitely going to be to their advantage.

We're starting to see the peak season surcharge start to expand in terms of timeline. But we’re also seeing varying rates depending on when it falls within that season.

China COVID Fears

China's zero-COVID policy still remains in effect, and it does run a risk of possible shutdowns — particularly if a new variant or a large outbreak happens as we head into the winter months. Those shutdowns would need to happen in the near four to six weeks to have a massive impact on this holiday season as most of the products are going to start shipping during the next month.

Concerns for Consumers

While many are paying attention to the constraints within the electronics and automotive industries due to the semiconductor shortage, a greater crisis is looming around food shortages. Food supply chains are being hit hard by climate events like the recent heat waves.

There are also ongoing concerns about wheat overall this year because of the war in Ukraine. The focus right now is shifting more towards food supply and less on everyday household consumer goods.

Consumers should start actively looking a little bit more to find options or alternatives that may give them flexibility in terms of shipping because there could be constraints coming. The shipping rates are going to increase during peak season, particularly parcels with the announcements from FedEx, UPS, and USPS. To avoid some of those rate increases, they ultimately get passed to consumers.

Spencer Shute is senior consultant at Proxima, a Chicago and London-based strategic team of supply chain and procurement specialists.

 

 

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