[Updated post from January 19, 2021]
It’s the beginning of a new year for logistics management – and this means a fresh set of themes influencing how 3PLs, parcel carriers, and merchants alike are striving to meet demands for streamlined, effective fulfillment.
2021 was a year beset by severe challenges for supply chain management. We head into 2022 as the COVID-19 pandemic continues to rage around the world, with consumers flocking to online shopping just as the physical retail sector mounts a shaky recovery from stay-at-home orders.
Nearly two years in, we’re starting to see how this ‘new normal’ is shaping long-term strategic decisions, with retailers fighting to keep pace with changing consumer behaviors and purchasing habits.
Without further ado, here are 4 top logistics trends set to shape 2022:
Businesses have spent 2021 grappling with ongoing supply chain challenges caused by COVID-19. According to a recent study by First Insight and the Baker Retailing Center, 98% of retail executives surveyed say that supply chain challenges will continue to impact the retail sector throughout 2022.
Picture the current supply chain crisis as a lake that someone has thrown a rock onto; after the initial splash, the ripples will continue for a long time afterward. COVID-19 is the rock – and the water is still a long way from settling.
The uncertainty surrounding COVID-19 and rising inflation is being exacerbated by what Forbes is referring to as the four Ps: Product, Prices, People, and Politics:
With this in mind, it’s hardly surprising that 80 percent of retailers plan to concentrate their 2022 supply chain spending on addressing the demands on e-commerce fulfillment, which has a huge demand for labor and accurate demand forecasting. As competition in the sector continues to heat up, it’s lean and flexible supply chains that will separate the winners from the losers.
With consumers demanding faster timeframes for home delivery and click & collect services, decentralized fulfillment strategies will be essential to continue meeting customer expectations in 2022.
With more consumers relying on e-commerce to shop for essential items during the pandemic, delivery expectations are rising fast. According to the Retail Industry Leaders Association, 90% of consumers see 2-3-day shipping as the baseline delivery promise, while nearly a third of consumers expect same-day delivery options to be available.
With the rise of the Omicron variant, we’ve seen many workers returning to working from home and staying out of downtown areas – if they even returned to the office at all.
As a result, many retailers have already pivoted their fulfillment strategies to keep pace with the long-term shift towards consumers spending more time in the suburbs, expecting lightning-fast delivery or pick-up from their local stores.
Amazon is planning to add 1500 same-day fulfillment centers in the suburban U.S., further bolstering its agenda-setting delivery capabilities. After debuting its new ‘sortation center’ model in the past year, Target is continuing to move fulfillment out of retail stores into dedicated facilities. Four brand-new sortation centers opened up during the Fall in Houston, Dallas, Philadelphia, and Lawrenceville, Georgia, with more reportedly on the way in 2022.
This is a clear indicator that store-based fulfillment while providing a good short-term solution, doesn’t offer the efficiency needed to significantly speed up delivery timeframes. We expect more retailers to follow suit with more permanent localized fulfillment strategies over the next year in response to changing foot traffic levels in shopping malls and downtown areas.
Brands, 3PLs, and consumers alike love to complain about the cost of shipping, and it’s set to get worse rather than better in 2022.
Thanks to the ongoing supply chain challenges and rising operational costs we mentioned earlier, major carriers have recently announced some of the highest GRIs (General Rate Increases) in recent years, with both FedEx and UPS committing to a 5.9% average increase across service levels.
It’s important to note that ‘average’ increases are somewhat misleading; over 97% of shippers are forecast to see their rates increase by more than 5.9% next year due to large surcharges on residential delivery and oversized packages.
Online-only retailers are set to feel this burden more than most, with rate shopping between carriers likely becoming a necessity to avoid a large hit to profit margins.
Rising shipping costs are further complicated by the growing convergence between GRIs and temporary peak season surcharges. Thanks to massive e-commerce growth during the pandemic, peak season volumes across the entire year have become the norm for parcel carriers. Seasonal surcharges have become a crutch to help carriers manage ongoing network pressures – meaning additional fees outside of the traditional holiday period.
This means that in addition to General Rate Increases, businesses should anticipate rolling temporary surcharges during 2022 as carriers grapple with inflation and rising fuel costs. It’s critical for merchants to review upcoming GRIs with major carriers to see where they’re going to accrue extra costs next year. Check out our 2022 GRI guide for more information.
Automation and AI within warehousing and supply chain management have been around for the past decade, but technological advances and lower upfront costs have made this more widely available to different-sized businesses.
The global warehouse automation market is estimated to surpass $30 billion by 2026, while an ARC Advisory Group survey published back in July 2020 found that 79% of respondents think it’s ‘likely’ or ‘very likely’ that they’ll invest in warehouse automation within 1-3 years.
As well as helping to increase productivity and eliminate human error, robotic automation better positions retailers to manage ongoing labor shortages and fluctuating consumer demand – especially as rising inflation looks set to tighten spending habits in the near future.
A great example of this is LocusBots, whose machines are equipped with autonomous navigation technology to coordinate pick-and-pack efforts within Whiplash’s own warehouses alongside human workers. Furthermore, AI enables these robots to provide valuable insights into the most effective travel routes and ‘hot spots’ within the warehouse.
Manual processes are becoming increasingly costly to retailers who are pursuing greater speed and efficiency. As consumer demand for rapid fulfillment continues to increase throughout 2022, we can expect to see more sophisticated deployments of automation across the supply chain.
We head into 2022 in the midst of an unprecedented omnichannel environment, where consumer expectations for seamless connectivity have never been higher.
Efforts to achieve rapid delivery timeframes will be hampered by rising shipping costs that are set to hit digitally-native merchants the hardest. But the increasing affordability of automation technologies is providing businesses with a way to offset the impact of widespread labor shortages.
This makes 3PL partnerships even more valuable for smaller brands that won’t be able to maximize such large infrastructure investments. As COVID-19 continues to shape logistics and the economy at large, ‘expecting the unexpected’ will pave the way for success in 2022.