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In this episode…
There’s been a lot of talk in the media about America’s broken supply chain. Rising costs, shipping delays, lack of port capacity, internal haulage issues, and more have dogged importers throughout the pandemic and are providing a bleak outlook this Christmas for many companies. But why are US logistics under so much strain? What’s going wrong and how and when might it be fixed? Is there an end in sight to logjams at ports?
Renaud is joined by American supply chain and logistics expert, Marshall Taplits founder of Ship It Done an East Coast 3PL warehouse and e-commerce fulfillment center, to explore the bumpy supply chain and logistics situation in the USA that persists and what the near future may hold for importers. Due to his e-commerce expertise, he also sheds some light on some of the ways SMEs selling e-commerce and Amazon vendors are affected, workarounds that may help them, and how to manage internal postage most efficiently, too.
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🎧 Marshall Taplits | Why Are US Logistics Under So Much Strain? (+ E-commerce Challenges) 🎧
Show Sections
00:00 – Greetings & introducing Marshall Taplits & Ship It Done
04:19 – What’s causing the logjams at US ports, logistics to fail under the strain, and delays in getting products to customers? Is it as simple as, ‘people have been buying more stuff due to lockdown?’ Covid stopped the whole US logistics system, the little inventory available in stock was soon exhausted, and new orders from China were delayed so shortages occurred as demand stayed relatively high. This has had an effect, but the main issues are the internal costs related to the US port system and internal logistics systems. The overall volume being brought in by companies is also a factor, as they are trying to build up stock to insulate from shortages (moving away from Just In Time) so even though customers aren’t buying a lot more in general, the volume coming in is difficult for the logistics system to handle.
07:42 – The move to ‘Just In Case’ buying. Now that the supply chain is under pressure and some companies have missed Christmas and with Chinese New Year looming, they’ve placed orders for extra containers to keep in stock ‘just in case.’ This is the opposite of buying what you need ‘just in time.’ This across the whole country gives the appearance of higher demand. This has caused logjams in China where the increased volume of products are having to be stored until they can be shipped, and then at the US end of the supply chain where they must be delivered.
11:26 – Why is delivery to US ports being held up? Is simply it a lack of road and rail capacity to move goods away after delivery? Road and rail capacity are the main problems. Right now systems are working against each other rather than working in tandem like a well-oiled machine. Some examples: US ports don’t run 24/7 unlike in Europe. Ports are privately-owned so are reluctant to invest during a crisis, they have union works so more shifts etc can’t just be added, so they’re slow to adjust capacity meaning that the extra volume coming in is delayed. The trucking companies used to be able to move 3 to 4 containers per day, but now it’s down to one due to delays in unloading the containers. Dockworkers get paid by the hour, whereas truckers get paid by the load delivered, so there’s a disconnect in priorities and much anger among the truckers. The rail system is also backed up with products being shipped from the West Coast to the Mid West and East Coast.
15:23 – Is the government likely to be able to bring in changes to improve the logistics situation? They want to but don’t seem to have people in power who truly understand supply chains. The truckers and ports seem to have rejected the president’s overtures to increase working hours. This situation probably won’t improve soon as staffing is already low and Christmas is approaching soon. It will probably need longer to work itself out.
17:37 – Could the 3-4 week break for manufacturers during Chinese New Year give the USA some much-needed breathing room to clear the excess goods and stabilize the supply chain situation? Hopefully, they will use that time to clear everything and be ready for the next batches that come in a month or two after CNY. The focus is on Christmas right now, though, even though CNY is only in early February next year. If they don’t manage to clear it, though, this could go on into next year. Smaller companies who don’t have contracted rates with shippers are suffering more and it’s their goods that tend to be out of stock, whereas the large companies are still getting their goods onto the market. If delays continue causing logistics costs to be high, this hurts SMEs into 2022. Some large companies, like American Eagle, have even bought their own logistics companies to try to alleviate supply issues. This may herald a new cycle of more competition in the shipping market which has been dominated by just a few large players which would probably be beneficial for SMEs. Smaller shipping companies could provide more flexibility to deliver containers to less busy ports, whereas the big players have set routes that they’re less willing to deviate from.
23:41 – What can SMEs do to weather the storm, are there any workarounds? Some companies have pivoted to shipping loose merchandise, as the rates for non-containerized shipping are far lower. This is an ‘old-school’ shipping method where goods are stacked into open hulled ships that may be less efficient than containers, but it helps businesses to avoid the congested container shipping logistics system right now. SMEs, in general, need to find workarounds to adapt to a challenging market. If that means avoiding containerized shipping, shipping more by air, nearshoring some manufacturing, etc, then this could make the difference. Companies may also choose to wait to launch new products and focus on keeping current models in stock, rather than take that risk. Costs are a big issue right now for SMEs who’re being squeezed by high shipping costs, increased port costs and delays.
27:20 – How about ports on the East Coast, are they less congested than California? Yes, generally the East Coast ports are less congested and right now are far more clear. There is plenty of unused capacity and it’s currently taking 2-3 weeks to get goods from New York to Marshall’s warehouse in Pennsylvania, which is only a little longer than before the pandemic. The largest issue is a shortage of truckers and chassis to pick up containers out of the port. Palletized goods are far easier and cheaper to move than containers right now.
30:27 – What’s the situation with air cargo? Air freight is fine these days. Compared with sea freight the system is working well and is efficient. A lot of their customers have been using air freight more, especially Amazon sellers who are testing new products by bringing in smaller amounts by air and then placing larger orders to be transported by container if sales are positive. More US Amazon vendors are turning to FBM sales rather than FBA as Amazon has tightened rules around storage, so they use a 3PL like Marshall’s company to assist in warehousing and fulfillment.
31:41 – What’s the difference between FBM & FBA, and what does frontloading by air mean for e-commerce vendors? FBM is ‘fulfilled by merchant.’ The products may still be listed on Amazon, but they are stored and fulfilled separately as orders come in. Sales may be a bit lower than FBA, where Amazon stores and fulfills your products for you, but they are still good as they avoid many of Amazon’s more expensive storage fees.
Amazon doesn’t allow large amounts of new products to be FBA until they’re proven sellers. In this case, the vendor frontloads by sending a small order by air that can be FBA and stores a larger backup amount in a local 3PL.
35:38 – Is it faster these days to send a container from China to California Long Beach or New York Elizabeth? Shipping from China to West Coast takes about 2 weeks, whereas to the East Coast is 4 to 5 weeks and the cost is about 20% more.
36:20 – When selling FBM is it cheaper to post products locally within the US than longer distances? Yes, the costs and times are longer for larger distances. The ideal scenario for e-commerce vendors would be to have an East and West coast warehouse and a system that can split the orders between them based on customer location, but this would increase costs. For smaller vendors, it may be more efficient to use one warehouse and give them more volume to reduce storage and shipping costs. Over time you can assess whether you have enough sales going longer distances that make it better value for you to use a second warehouse over paying more for postage. Some services also replicate the FBA model where you overpay for everything to maintain one set cost that doesn’t change. This may be better for some vendors.
39:04 – Wrapping up
Related content…
- 3 Major Supply Chain Risks for FBA Sellers Importing from China
- How To Choose The Right 3PL Logistics Company?
- How To Dropship From China?
- Why Amazon FBA Prep Should Be Done In China (Not The West)
- How Amazon FBA Sellers Should Control Quality in China
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