The shipping industry is under pressure, which could hurt South Africa’s retail high season

Widespread global shipping disruptions may jeopardise South Africa’s retail high season that includes November’s Black Friday and the December seasonal sales — unless importers move fast.

The sector is recovering on the back of pent-up demand, after a -21.8% decline in imports last year caused by the temporary halt of global trade, Investec anticipates a GDP growth of 2.9% for 2021. 

There are rising headwinds regarding vessel capacity and container availability, port congestion, increasing freight rates and production delays. Consequently, importers and retailers are facing the risk of receiving stock too late for the sale season. Retailers need to weigh up the cost of landing stock in time to make sales versus the cost of not having stock available.

This unusual situation arises from a combination of significant events such as disruptions caused by the Covid-19 pandemic, the Suez Canal blockage, on-going port congestion and vessel omissions which is having a crippling effect on supply chains. The result is a slew of reliability and capacity problems resulting in some cargo arriving between two to five weeks later than scheduled. Shipping lines, for instance, are experiencing such severe backlogs in some regions that they have had to stop accepting new container bookings for weeks until the backlogs have been cleared.

It is crucial to also bear in mind that the Asia-United States trade has a huge effect on global supply chains and, with the US peak shipping season yet to get into full swing, market conditions are poised to get worse in the coming months. This means any stock — received on time or even ahead of schedule — will increase in potential value if competitors have failed to get stock in time. This could result in an increased market share, adding a different dimension to discussions about the cost of shipping.

Retailers bank on increased Black Friday sales, and the importance of this was highlighted last year when some retailers ran their Black Friday deals for the entire month of November. In previous years we have seen retail sales spike during Black Friday promotions. Not receiving stock timeously could have costly implications for retailers. 

South African retailers are competing with global demand. To demonstrate how dominant Black Friday and year-end sales have become, Chinese manufacturers are working at such capacity to produce enough stock for the rest of the world’s peak retail period that electricity supply to factories is being rationed in some regions, resulting in lost production time of one to three days a week.

A further consequence of shipping bottlenecks is that suppliers are affected by supply chain disruptions as much as retailers. They might not be able to source raw materials in time to meet orders. In the past manufacturers stipulated “minimum” orders, but today they have “maximum” order quantities as they juggle their global clients to deal with supply chain constraints.

Shipping lines are in a precarious situation as they try to balance capacity and equipment availability across multiple trades to meet demand while having to deal with factors beyond their control such as port congestion, vessels placed in quarantine, forced routing changes and sailing delays. Sailing schedules have even been amended on-route without prior notice thus affecting the visibility of one’s shipment and extending the lead time.  

Capacity and equipment get prioritised at a premium. The major trading hubs of the US, Europe and Asia get preference, further pressure on South African retailers receiving their orders in time for the peak sales period. Demand is expected to increase in the coming months, which will place more pressure on capacity, equipment and rate levels.

Increased demand and supply chain delays will probably result in shippers and importers getting desperate to meet deadlines and switch orders from sea to airfreight. This will drive demand up for airfreight and consequently rates will increase, resulting in higher landed costs and potentially creating another set of problems. Retailers may need to absorb the higher landed costs or pass the costs on to consumers.  

Collaboration with suppliers, logistics agents and financial service providers will be key for retailers to navigate through these unpredictable times. A few key fundamentals need to be covered to overcome the problems. Having a strong freight forwarding partner that has strategic relationships with shipping and air lines, as well as an extensive global network that can offer multiple shipping options will be invaluable.

Another option is for retailers to ship orders earlier than normal and make provisions for longer lead times. But ordering earlier comes with cost implications and retailers who move earlier than usual will carry that stock longer, putting pressure on their working capital and cash flow. This is where a financial service partner can play a major role in supporting the business.

Retailers will also need to be flexible and decisive when considering shipping options. For example, if a 12m container is not available at the time of stuffing the container at origin, one may need to accept shipping in two six-metre containers to ensure you can meet your in-store dates. There will be a trade-off between additional shipping costs and the risk of receiving stock late, resulting in lost sales.

Seasonal sales are critical for the recovery of the retail sector and with good planning Black Friday will hopefully not become a blue one.

An actual Black Friday deal

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Denys Hobson
Denys Hobson is a logistics and pricing analyst at Investec for Business

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