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Why a Sustainable Supply Chain May Be More Important Than Ever

For Amazon FBA Sellers, ocean freight shipping costs and times have skyrocketed to eye watering levels in 2021 as the global supply chain has been stretched to breaking point.

A surge in consumer spending, and a shift towards goods (like a new desk for your working from home office) rather than services, has pushed a system that is based on just-in-time deliveries, past what it is capable of efficiently delivering. There are few places that give a better example of the current situation than the US city of Los Angeles where the pandemic has replaced queues of people outside of its cinemas with record queues of container ships outside of its port.

Amazon even announced “Black Friday-Worthy” deals in early October to spread out some of the holiday season demand.

No Change in the Short-Term

The stress on the global supply chain could last anywhere from up to the end of the first quarter of 2022, all the way through to 2023, according to various sources. Even if demand starts to subside, low inventory levels will keep volumes high as companies restock their facilities.

The result of this demand surge is that ports are handling cargo volumes that they are simply not built to. Ports (and national governments) have implemented a raft of measures to deal with this issue, for example, the port of Los Angeles has started operating 24 hours a day to try to clear its backlog. However, making major changes to ports’ productivity levels and capacity volumes will be a slow and costly process.

On top of this, once cargo is on the ground, there is also a shortage of truck drivers. In the US, Andrew Horowtiz of Horowitz & Company noted on Curzio Research that trucking companies can’t find enough drivers with some drivers that were out of work during the start of the pandemic having found other employment. Meanwhile in the UK, the country’s Road Haulage Association estimates that it needs around 100,000 more drivers.

All of this is before we even get to the effects that piles of empty containers at the wrong end of the supply chain, natural disasters, Covid-related port and factory closures, Brexit-related Amazon infrastructure changes and cyber-attacks on ports have had... The tightness in the ocean freight market has also spilled over into the air freight market (as importers look for alternatives to the red hot container shipping market) with delays and prices also rising there. For example, in the last month alone, our logistics team in China saw air freight delivery times for routes to the US, EU and UK rise by around 5 days on average for some cargo types.

Planning and Preparation

What this means for Amazon FBA sellers is that now is the time to invest time and, if you have it available, capital, into ensuring that your Amazon store has a diverse and flexible supply chain that can react to the (potentially) once in a lifetime market conditions. So, if you’re an intrepid Amazon FBA seller in this challenging environment, what can you do to build a more sustainable supply chain that keeps your cargoes (and cash) flowing?

1. Build up your buffer stock: If you end up with a cargo that is delayed at port, the last thing you want is to be looking at an FBA and third party warehouse inventory that is in the single digits. Keeping higher than normal stock at a third party warehouse might cost a bit extra, but if it keeps you from running out of stock, it can be exponentially cheaper than losing your Amazon sales ranking.

2. Forecast, forecast, forecast: The better you analyse how much stock you need, and how much stock you might need over the next 1,3,6 and 12 months, the less likely it is that you will be facing an unwanted surprise this holiday season or next year.

3. Know your supply chain: This means making sure that you truly understand your supply chain and making sure that you have the data available to know where your inventory is at any moment and also knowing how long it will take to get to its destination. In addition, it is also important to diversify and strengthen your connections with product manufacturers, freight forwarders and third-party warehouses to ensure that you have a supply chain that you can rely on.

Sustainability means Two Things

Outside of developing your supply chain’s resilience (and hopefully reducing its cost), better planning can also help to reduce the emissions that your business creates. Better preparation means less express air shipments and a lower CO2 emission level. However, it should still be noted that traditional container vessels use a low-grade type of fuel that is high in sulphur content and causes significant pollution in other ways. Additionally, the unprecedented queues outside of many container ports are adding to air pollution around those areas.
So if you can’t guarantee that you can minimise your FBA business’s environmental footprint through better shipping plans alone, one solution is moving your production inside of your product’s marketplace(s). The case for this is currently more appealing than it often is, too, with shipping costs and delays not expected to come down any time soon and coal shortages in manufacturing hubs in Asia causing power outages and price increases. So although producing goods in the US, EU, etc… can often be more expensive, if there was ever a time to consider looking at in-market production options, which have much shorter shipping times, lower shipping costs and a potentially better (and less coal powered) environmental footprint, now would appear to be one of those times.

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Erika Ottela

Chief Operating Officer

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