Current Effects of Port Congestion on Retail Businesses

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Current Effects of Port Congestion on Retail Businesses
port congestion

Due to heightened consumer demand caused by COVID-19, supply chain operations struggle to keep up, especially as the holidays are fast approaching.

According to National Retail Federation Vice President Jonathan Gold, retailers face a failing logistics system with an apparent lack of capacity, labor, and equipment.

Though businesses and retailers have prepared months before the holiday season to anticipate a supply chain surge, the nation’s ports are still expected to remain congested. Retailers and carriers are hoping to move products from docks to shelves to meet the product demands of shoppers in time for the holiday season.

What is port congestion?

When a port has reached maximum capacity, vessels are unable to dock to load and unload cargo.

Because ports can’t accommodate all the vessels in question, some will have to wait at an anchorage for hours or days at a time before a spot becomes available.

As of 2021, approximately 70% of global ports are congested.

Causes of port congestion

The leading cause of port congestion is that there isn’t enough freight capacity and volume –– containers, chassis, trucks, trailers, docks, and drivers–– to keep up with the skyrocketing demand for consumer goods.  In short, there’s still a large volume of cargo lined up and waiting to board containers. 

Today, the supply chain is still recovering from the aftermath of increased panic buying and home consumption due to COVID-19. Compounded with the large volume of cargo waiting to board ships in time for the holidays, we can only expect port congestion to worsen during this peak season.

Extreme weather conditions also hold back containers and exacerbate port congestion. In rare cases, shipping lines may also “hold back” freight to pile up demurrage costs.

How does port congestion affect your supply chain this holiday season? 

Unsurprisingly, port congestion has continued since the start of the pandemic up until the peak season, when retailers are stocking up shelves for the holidays. Even though retailers have anticipated the increasing inventory challenges of the holidays, the NRF forecast is still overwhelming.

December 2021 cargo is expected to be at 2.18 million twenty-foot equivalent units (TEU), up 3.5 percent year-over-year. Meanwhile, in January 2022, the forecast is expected to rise to 2.21 million TEU, up 7.6 percent.

Products on hold

According to NRF, the problem with the supply chain this season is that containers aren’t moved fast enough to make room for more in the next ship. Because of this, the products shoppers are waiting for in-stores are left in containers longer than expected.

That is, inventory is put on hold, and store shelves are left empty.

According to Bloomberg, the average wait time for California ports increased to 17 days in November 2021. That’s double the waiting time compared to two months prior.

By the end of November, more than 80 container ships were queued at anchor and in the holding zone at a Los Angeles Port.

This should give you an idea of how the bottlenecks in the US supply chain and how ports have reached capacity.

Weak managing capacity for heightened consumer demand

As the US economy is recovering, consumer demands fluctuate while factory closures and port containment efforts continue.

According to BBC, consumer goods demand is up by 22%. The bump in demand is generally a result of the import of toys, sporting goods, games, and household appliances.

And unsurprisingly, a huge bulk of the containers at sea are filled with a billion dollars worth of Halloween and Christmas decorations, including artificial trees and Christmas lights.

With this increase in consumer demand due to the recovery of the US economy, there are not enough port staff available to move containers. There is also a global shortage of containers, and the situation is made worse by the shortage of drivers that operate lorries. Because of this, both empty and full containers stack up in port.

And as expected, port congestion will have a domino effect that will put pressure on rail, air, and road capacity as well as overflowing warehouses.

To avoid port congestion, some carriers are skipping required stops altogether. This further results in a further imbalance in port management and the supply chain.

Higher product prices and fewer consumer choices

In light of higher shipping costs for containers and ocean freight, retailers and consumers will likely face higher product prices.

Retailers are already struggling to replenish inventory, so businesses face the possibility of being unable to meet consumer demand during the holidays. 

Because of delayed shipments and unavailable product choices, retailers will likely receive less than ideal customer satisfaction rates. Companies are looking for different ways to meet customers’ expectations, such as moving factories closer to their final destination. 

To expedite deliveries, other corporations are ordering supplies way ahead of schedule. Others are working with more carriers to increase the number of ports under their belt.

Businesses have lower revenue 

Retailers simply do not have enough products on their shelves to meet the growing demands of customers. 

Due to the pandemic, warehouse restrictions and shutdowns have caused major backlogs in protecting inventory due to longer production times.

Because of higher port charges and freight rates and the inability to supply customer demands, businesses will have decreased revenue even during the holiday season.

How can businesses make supply chains more resilient to seasonal port congestion?

While it’s impossible for retailers to control the abnormal processes of the global supply chain, there are a few ways for businesses to prepare for anticipated port congestion.

It is possible for retailers to work closely with suppliers and carriers to develop a strategy that takes into account delays and peak seasons.

It’s important for businesses to have a wide selection of shipping options to avoid port congestion. Unavailable products and supply chain delays can have lasting effects on your brand’s image.

Online freight marketplaces can help retailers find affordable shipping options while preventing port congestion.

Goship.com offers a 24/7 online calculator which will give you an instant quotation for your freight needs.