Amazon’s network, increasing reverse logistics volumes, and tariffs are the issues that will define the supply chain for the remainder of 2019.
With the end of summer in sight, many logistics stakeholders are left wondering how supply chain instability will impact the success of the upcoming holiday peak season, their long-term forecasts, and day-to-day operations. This piece will analyze the current state of the U.S. logistics industry to help shippers determine the best approach to some of the largest challenges.
The following issues will likely define the supply chain for the remainder of 2019:
Amazon now has a logistics network capable of reaching most U.S. consumers within a day. Amazon announced a rapid expansion of its same- and one-day shipping services, sending the retail sector into a panic. Other major players like Walmart have challenged Amazon’s power move with similar quick-shipping plans of their own, but e-commerce businesses that don’t have that level of resources are rightfully worried.
Many e-commerce companies have responded to this new normal by purchasing or leasing real estate near secondary markets, or by partnering with logistics providers with these resources. By diversifying distribution and fulfillment assets, internet retailers hope to reduce shipping times and remain competitive.
As e-commerce dominates retail sales and omnichannel makes a surprising comeback, these businesses must contend with an increase in returns. Consumers return billions of dollars in merchandise they purchased online each year and they want the process to be easy and free (we can thank Amazon again).
Shippers are turning to third-party logistics (3PL) providers for help in this area, with 24% of respondents to the 2019 Annual Third-Party Logistics Study saying they outsource this process, and 44% of 3PLs saying they offer reverse logistics support services. Continuous growth in reverse logistics is a surety for the rest of 2019 and beyond.
Tariffs are a topic of daily discussion for most supply chain managers and business leaders. While tariffs have been leveled at other major trade partners, the U.S.-China trade war has received the most attention. The escalating trade dispute between the two countries doesn’t show any signs of stopping, as negotiations have fallen apart multiple times.
U.S. businesses are looking at increased costs on significant percentages of raw materials and components. Many American manufacturers and retailers can no longer afford to eat the increased costs of importing goods and have begun to pass them on to customers.
While the trans-Pacific shipping industry saw a short-lived boom as American and Chinese companies purchased excess inventory in advance of tariff implementation, business is dropping off and carriers have too much capacity. Domestic ground carriers are hurting as well because freight demand is negatively impacted by the high levels of inventory held by U.S. importers.
Many other industries beyond transportation are struggling to adapt to this new trade environment as well, including telecommunications giants, agriculture, automakers, manufacturers, and many more.
Amazon isn’t going anywhere, consumers won’t stop returning items, and it seems unlikely that the tariff wars will end in 2019. Unfortunately, supply chain volatility is the new normal. All affected logistics stakeholders should be diversifying their assets, technology, suppliers, and partner relationships to address these challenges and combat the risks and disruptions facing the supply chain in 2019 and beyond.