The pandemic changed what we ate, how we shopped, and the things we bought. These shifts in consumer behavior extended beyond just B2C. The volatility impacted the B2B space as well with a greater push for reshoring manufacturing operations in the United States from overseas. While many pandemic trends head for the history books with each person vaccinated, the data shows these four changes are here to stay—each transforming the logistics industry in its own way.
E-commerce Will Keep Growing
During the pandemic, we shopped online. A lot. For perspective, analysts projected e-commerce would account for24% of all retail sales by 2024 in the United States. As of July 2020, online sales as a percentage of retail sales had exceeded 33%. But the growth is not exclusive to the United States. Digital adoption in Europe jumped 14% during the pandemic. Latin and South American countries realized double-digit e-commerce growth despite limited infrastructure.
The world’s embrace of e-commerce is straining the supply chain like never before, especially for parcel logistics. UPS alone averaged 21.1 million package deliveries daily in Q2 of 2020, a 22.8% increase from the previous year. Beyond the overall volume increases, expanded B2C shipping creates delivery density problems. More packages with greater time-in-transit prompted both FedEx and UPS to permanently eliminate service refunds, raise shipping rates, and strictly enforce customer contract volumes.
As the world’s largest parcel carriers struggle to keep up, companies are rushing to reduce the costs of the e-commerce boom. Top priorities include investing in more regional distribution centers, innovation around packaging, and developing more cost-effective reverse logistics models to accommodate the nearly 25% of purchase returns associated with online shopping.
The United States Postal Service also is investing more in servicing e-commerce with its new Connect Initiative. The program allows online sellers to access the USPS local and regional network for quicker deliveries and easier returns.
A Big Problem for Big Purchases
Online purchases volumes were not the only that “grew” during the pandemic, we also bought bigger items. The work-from-home shift prompted people to focus on durable goods such as furniture, appliances, and home-improvement items. Housing starts also skyrocketed and currently sit at a five-year high. Increased spending on home-durables lasts about two years following a new home purchase, meaning the current boom is expected to extend into 2023. The challenge with bulky purchases is space— both the accommodation of physical dimensions and the availability of shipping containers to move them.
Shipping container shortages were a major 2020 headline for logistics. The majority of the steel containers are produced in China, the first country to shut down in the pandemic. Production has yet to meet demand since the delay.
Dramatic reductions in air travel have more freight moving by container ship. A majority of the major ports across the world are experiencing back-ups due to the significant surge in imports. Most impacted is the Port of Los Angeles. At the beginning of April 2021, steamships waited an average of eight days to be offloaded. Volume is expected to increase by 120% in May 2021 from the year prior. The situation is so dire that some steamships are heading back to Asian origins with empty (“blank”) containers to save time. That move is creating delays for American exports, especially in the food chain.
More large items and less container space is creating a perfect storm. La-Z-Boy reported that consumers can expect to wait five to nine months on new furniture orders. The trend is also driving higher prices in less-than-truckload (LTL) moves as domestic transportation providers give bulky items priority. Overall, businesses and consumers can expect to pay more and wait longer for goods in the months ahead.
Staying Healthy at Home
Along with purchasing those large treadmills and ellipticals for our home gyms, the pandemic also reintroduced us to our kitchens. Forgoing restaurants and cooking for ourselves meant stocking more perishables as we focused on fresher, healthier eating. Analysts believe this challenge to the food cold chain is permanent.
Data show consumers want fresh diet choices and more organic foods moving forward. This means more retail shelf space dedicated to foods with high spoilage rates. To reduce waste, retailers will require quicker transport times from field to store. Demand for already limited refrigerated transport and cold storage warehousing will increase, as will associated prices.
But the new fondness for fresh extends beyond large retailers. Home-delivery meal kit sales grew by 18.7% in 2020 compared to just 0.6% the year prior. Despite restaurants across the U.S. opening back up, estimates show 60% of consumers plan to continue eating most of their meals at home.
Meal kits present unique logistics dilemmas. Optimizing final mile delivery routes—already over capacity with non-perishable parcels—for more fresh and temperature-sensitive food deliveries is challenging. Many meal kits are drop deliveries today, but as retailers master click-to-curbside pick-up in less than 60 minutes, meal kit providers will have to keep up creating a larger need for on-demand deliveries and more local cold storage facilities.
Reshoring to Combat Cost Pressures
Pharmaceutical companies were 2020’s hero with COVID-19 therapeutics and vaccines developed at historic speeds. Producing sufficient volumes of therapies for eight billion people in a matter of months is a herculean task. Moderna, Pfizer, and Johnson & Johnson all have their U.S.-based manufacturing facilities running 24/7. However, a large portion of the raw materials needed originate abroad. Pharmaceutical manufacturers must navigate the limited transportation capacity, international shipping delays, and cost increases to meet demanding production schedules. The cost of shipping a 40-foot container out of Asia has increased by nearly 260% on some trade routes over the last year.
Moderna CEO Stephane Bancel told investors that if on any given day “there’s one raw material missing, we cannot start making products and that capacity will be lost forever because we cannot make it up.”
Yet the challenge of managing pharmaceutical raw materials is not new. Even before the pandemic began, more than 60 drugmakers increased prices an average of 5.8% in 2020 with some citing raw material costs increasing as much as 50%.
Vulnerabilities in the pharmaceutical supply chain has been a hot topic for years. Of growing concern is the reliance on India, which produces 40% of the world’s generic drugs, and China as the source of 80% of the chemicals in the drug supply chain. The growing potential for disruptions has many U.S. manufacturers considering moving their supply chains closer to home.
As that shift occurs, expect an increased demand for pharmaceutical storage domestically. The global active pharmaceutical ingredient (API) market is expected to grow 6.6% annually through 2028 as the population ages. The storage needed to accommodate that growth will lag demand. Building a facility and meeting FDA compliance guidelines for highly specialized pharmaceutical storage is expensive and can take years from groundbreaking to storing GMP materials. Industry can anticipate strong competition among drug manufacturers for domestic logistics providers with cold storage warehouses and pharmaceutical expertise.
Manage the Trends with Langham Logistics
At Langham Logistics, we did not wait for a pandemic to optimize performance. Our skilled team has been preparing for today’s logistics challenges for years. From kitting and assembly for e-commerce to FDA-approved GMP cold storage and managing a global supply network, we know how to navigate evolving supply chain needs. We also stand on the frontlines of shipping and storing lifesaving pharmaceuticals. Learn how we combine years of experience with advanced technology to solve even the most complex logistics challenges.