(03:16) Unwavering Consumer Expectations
“I think the consumer should prepare for some disappointment, quite frankly. - Dan Stolarksi, Senior Managing Director Kin + Carta Advise America
“Prepare for some disappointment”–a leading candidate for the 2020 movie poster.
That’s Dan Stolarski, from our Kin + Carta Advise office in New York. We spoke with Dan and Bryan Frank, also from Kin + Carta Advise in New York. They emphasized that while so much of the world has changed because of the pandemic, consumer expectations largely haven’t.
“If you think about it, 80 percent of Cyber Monday shipments are shipped for free. That's obviously very largely driven by Amazon and shifting the behavior with the consumers and what they expect. About 25 percent of consumers will actually abandon their cart once they see an unexpected shipping charge appear in their cart. In the meantime, all major carriers, USPS, UPS, FedEx, are increasing their rates for the holiday season. United States Postal Service had made permanent price changes and what UPS and FedEx are doing is they've introduced holiday season surcharges. We're not done yet. Add to that, that almost 50 percent of consumers expect their packages to arrive quicker this year versus last year. And then finally, let's not forget reverse logistics. Of the nearly $250 billion in expected online sales this holiday season, about $50 billion worth of goods are expected to be returned, which represents roughly 25 to 30 percent of the holiday's shipping volume. “
50% of consumers expect packages to arrive quicker this year than last.
You might be wondering right now what planet those people live on. Was actual chaos the missing ingredient to really make our supply chains more efficient?
As consumers, we’ve come to expect free and fast shipping. We want simple returns. We want to procrastinate. As JG Wentworth commercials taught us to scream from our window–“It’s our convenience and we want it now!”
(05:11) Surging Shippers
So expectations haven’t really changed. But package volume for carriers like FedEx, UPS and DHL is expected to exceed capacity by at least 5% globally. Shippers are providing every sign possible that they’re prepared.
The good news, if you can call it that, is they’ve had 8 months of the shipping world turned upside down to practice? UPS hired 39,000 new employees earlier this year, including plans for over 100k additional seasonal hires. FedEx also announced plans to add as many as 70,000 additional workers for the holidays.
In our conversation with Dan and Bryan, Bryan emphasized that the math simply doesn’t tell a promising story:
The demand clearly outstrips the supply. How quickly can you add new trucks? They already do this every year. They add thousands of seasonal employees to get out there, who don't always know the routes very well, don't know the customers, it causes all these other delays.
I think it's difficult to believe that there's enough capacity in what is already a relatively constricted and hard-to-adjust-in-the-scale business.–Bryan Frank, Director, Kin + Carta Advise.
(06:24) Driver Shortages
Sometimes, the human side of this topic can get lost. Until the promises of driverless trucks come to fruition - this is very much a human business. Every package, every truck, depends on PEOPLE to keep it moving. Dan says it’s worth keeping in mind that drivers were already in record short supply, even pre-COVID.
“Not only do we have a capacity issue, we also have a driver issue. The demand for truck drivers is at an all time high, and there are massive, massive numbers of job openings that these companies cannot fill.”
In 2019, tens of thousands of drivers left the industry. Hundreds of trucking companies went bankrupt. All before approximately 88,000 drivers lost their jobs when the pandemic hit in April.
Some fear that surges in COVID-19 cases between Thanksgiving and Christmas could also pull thousands of drivers off the road.
In an October piece, the New York Times’ Shira Ovide summarized the nature of the problem well, she writes: “The potential for hiccups shows the complications when our zeal for shopping from home meets the physical limits of humans, warehouses stuffed to the rafters, roadways and ocean freight shipping.
There’s always been a war to get stuff to our door. It’s just been one we usually ignore.”
(07:56) How Retailers are Adapting
Beyond adjusting for the holidays, Dan and Bryan say it’s time to think bigger.
“I think that the bigger question that we need to ask is, ‘ Is the current shipping system that we have a sustainable one? Is it the right one? - Bryan Frank, Director, Leader of Kin + Carta Advise NY, Leader of Consumer and Retail Practice.
“I think that the bigger question that we need to ask is, ‘ Is the current shipping system that we have a sustainable one? Is it the right one?’ Shouldn't we be thinking more intelligently about using local stores and local opportunities near customers as ways to distribute goods? It may be buying online, picking up at the store in a different fashion. It may also be using those stores as local distribution centers. I think everybody needs to be thinking about alternative ways of getting goods to customers and incentivizing customers to choose the option that works well for them.”
This year, Walmart converted 42 warehouses that were originally used to ship products to stores–to now fulfilling online orders.
Best Buy recently announced it would be offering same-day delivery, thanks to a new partnership with on-demand grocery platform Instacart. Bed Bath and Beyond announced a similar change, working with Shipt and Instacart to get products delivered faster.