What Logistics Surprises Are in Store for the Final Quarter of 2014?

Published : October 12, 2014

logistics-surprisesWe keep hearing that the economy is in recovery mode following 2008's Great Recession. But the American recovery has been slow— tempered by continued job insecurity, creeping consumer confidence, rising transport and logistics costs and nagging economic instability in the Euro zone.

Even with a stabilizing US economy, Thanksgiving weekend sales in 2013 dropped by 2.7 percent— the first such decrease in 7 years— leaving experts unsure of what to expect in the last quarter of 2014.

So how can retailers and their third-party logistics (3PL) partners best position themselves for this holiday season? While it may be difficult to make predictions with any certainty, there are a few trends to bear in mind.

Inventory levels were high last year, and retailers paid for it.

The US logistics industry faced near-peak usage of its storage capacity in 2013, as manufacturers and retailers bet on a strong fourth quarter. That contributed to an overall 2.8 rise in carrying costs, yet demand for space still reached a record level, in part due to a continuing drop in interest rates. Unfortunately, the retail sales didn't materialize.

There were probably many factors contributing to this. First, much of the Lower 48 experienced a nasty winter. The 2013-14 winter season was one of the coldest on record for the Midwest and much of the country east of the Mississippi River didn't fare much better. This exacerbated an already negative climate for brick-and-mortar sales, so many traditional retailers felt an acute pinch.

Second, online sales continued to grow. Much of the growth, however, involved low-volume and one-off shipments, for which data is scant. Although the logistics industry as a whole contributed less to GDP in the fourth quarter than had originally been forecast, it's hard to quantify what percentage of volume was lost to small-volume shipping. And 3PL providers are increasingly catering to low-volume retailers, offering pack and ship service, inventory management and even staffing call centers to handle aggregated small volume retailers' customer service needs.

Lastly, trucking costs were up an estimated 1.6 percent across the board last year, as capacity was high, drivers were short and fuel costs continued to rise (although the rise of natural gas-powered fleets and so-called "smart supply chain" management systems are helping to temper this). With exports (especially to the weakened Euro zone) falling much of last year, even many well-positioned global companies with integrated supply chains were unable to overcome the downward pressures.

Is there any good news for 2014?

Yes. There is. Last year's fourth quarter drop may have resulted in a market correction. Although Europe is still looking unstable (even more so now with worries about Russian geopolitical maneuvering and Mideast extremism on its doorstep), the domestic market is looking healthy, if cautious, this year. In fact, the logistics industry added jobs this year, which means the capacity crunch is likely not to be as heavy a factor on prices this holiday season.

Moreover, consumer confidence was up 1.3 percent through the first two quarters of 2014— the US economy's best consecutive quarter showing since the recession— and the dollar is stronger right now relative to the pound, the euro, the yuan and the ruble than it was this time last year.

Barring major shocks, most economists expect continued growth in the American consumer goods market, with stronger imports and more domestic consumption, although the strong dollar will likely keep international exports weak.

This holiday retail season, position yourself for success.

As 2014 draws to a close, you need shipping solutions that will help you finish strong.

If you are looking for a 3PL provider or a pack and ship company to partner with before the holiday retail rush, time is ticking. Look for a partner with experience, streamlined smart technology, a centralized location and multi-channel inventory support. By outsourcing to maximize your company's logistical capabilities, you can beat the holiday sales competition to the shelves and to your customers' doorsteps.

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Topics: Supply Chain Logistics

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