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The disruption to the supply chain since the onset of the Covid pandemic still haunts businesses today, and these constraints affect both sellers and consumers. Inflation is just over 5%, the biggest annual jump since 2008, and economists agree it is largely driven by specific sectors such as import and manufacturing. The increase in costs is largely due to logistical problems.
Why is inventory missing?
Over the past few months, if you’ve been browsing the grocery store aisles, frequenting several restaurants, buying goods online, or shopping at your local liquor store, you’ve probably noticed a general trend: things are missing.. And it’s not just the basics, like toilet paper and bleach wipes, that are out of stock. The lack of products such as chicken wings, vodka, face masks, diapers and other products is (mostly) the result of supply chain congestion which has led to unprecedented shipping delays , skyrocketing shipping costs and ports along the west coast of California. being clogged. This resulted in a longer wait time for consumers as well as an increase in unit prices.
China’s shipping crisis
And this anomaly does not only affect consumers. Both e-commerce stores and brick-and-mortar stores are feeling the pressure, with delivery times that used to be 6-8 weeks and spanning a 4-6 month window. This is a direct result of lockdowns, staff shortages and China’s recent action to gas and electricity rationing.
Shipping costs have increased significantly over the past year. Today, a container from Shenzhen to the Port of Los Angeles can lead a merchant between $20,000 and $42,000. Compare that cost to 2019, when the same shipment would cost around $3,500 – you get a general idea of why so many retail stores are struggling. This pile of problems is so frustrating that large conglomerates like Home Depot and Costco have decided to take matters into their own hands by leasing entire container ships to better control shipments from Asia to the United States. Even with these proactive changes, Costco must still limit the purchase of certain products for each customer.
Although this “pandemic” affects retailers at all levels, it is particularly problematic if you are an Amazon FBA seller for several reasons. Sellers using Amazon fulfillment centers are limited to the amount of inventory they can stock with Amazon. Limits are based on a seller’s store performance, so new sellers typically have lower inventory thresholds. This means they have to order units more often. Due to manufacturing and shipping delays, Amazon sellers often run out of items without being able to quickly replenish their inventory. This then leads to their Amazon listing being removed.
There is also a shortage in the freight trucking industry
Overseas shipping isn’t the only part of the supply chain that’s hurting. The trucking industry has also been hit hard. Bureau of Labor Statistics data meant that one of the repercussions of the Covid-19 pandemic was that the trucking industry had lost 6% of its pre-pandemic workforce of 1.52 million workers. Yet the industry never recovered after the opening began, largely in part due to low pay, long hours and few benefits
The aggregation of all of these supply chain issues has manifested into what could undoubtedly be considered a full-fledged pandemic. And it’s not just Amazon’s SMBs that are bearing the brunt of this domino effect — even large M&As and capital-intensive aggregators are at a disadvantage.
Related: Amazon Workers Quitting Jobs, Say Company Cut Break Times Because Pandemic Is ‘Supposedly’ Over
How will shipping delays affect Amazon aggregators?
Amazon aggregators are accumulating SMBs that primarily rely on Amazon’s FBA structure to sell products. Think of aggregators as house turners; only instead of reselling the house, they keep it.
When it comes to e-commerce aggregators or buyers, their greatest assets – liquidity, scalability, and operational management – may be the very cards that could bring them down. In these tumultuous times, the abundance of outside liquidity may be in limbo as investors are pressured by other market factors, calling on them to possibly pull back.
Rapid growth for aggregators can mean acquiring a few businesses a month, often from brands that were recently run by small teams that lacked operational efficiencies or SOPs, making onboarding very manual. Abundant surprise, once the original owners are out, it’s up to the aggregator to distill and migrate everything (including production and logistics). With a trademark portfolio, complexities of such magnitude are compounded because often each company’s manufacturer or inspection company is different. This, in turn, leads to the aggregator having multiple shippers, ports, containers, and relationships to manage.
All of this assumes that they also made accurate inventory forecasts in an ambiguous and highly unpredictable year. When demand fluctuates, they run out of stock sooner than expected and then they are much further behind the 8-ball. Playing catch-up with high shipping costs, port congestion, difficulties in keeping inventory in stock, as well as disruptions in the trucking industry pose a very plausible situation: how to anticipate the impending debt that outside investment require, regardless of the profit margins?
What is the trajectory of future shipping operations and Amazon sellers?
Supply chain finance has come to the fore more recently, but this specialized finance is often reserved for the biggest companies in the world. Small businesses end up with business loans, which can be difficult to obtain due to the inherent risk. The cash crisis is very real and is affecting Amazon FBA businesses very acutely.
Related: Customers Calling to ‘Cancel’ Amazon Prime After New Price Hikes Announced
The stranger on a plane
Recently, I was on a plane sitting behind a man who was diligently working on a brand deck. From what I saw/heard from my curious vantage point, he was an executive of a publicly traded company – a brand in the admirable position of retaining huge consumer loyalty and growing company profits. one year to the next. His seatmate started talking loudly about the brand with him, saying he was a fan, but had a few questions.
“Are you really out of stock or are waiting lists a marketing ploy to create a shortage?”
The executive spoke very candidly about what the past year has been like as a consumer brand. Starting with a very welcome but unexpected demand, their models were for a normal year – not a year of upset consumer behavior. Their on-hand supply and manufacturers were caught off guard. Then came the lockdowns. The factories where their wares were made shut down completely for months. They rushed to find new manufacturers in other countries, hoping that redundancy would ease the pressure. And it helped. Manufacturing and shipping times have improved – only to get caught up in traffic, sitting in US ports alongside hundreds of other containers. Ports had been closed, people had been laid off at the start of the pandemic over fears of lower incomes, and many of those positions have still not been filled.
So therein lies the recipe for a perfect storm: unprecedented consumer demand with very low productivity in manufacturing, exorbitant shipping costs, understaffed ports and trucking companies working with late containers.
This leader and his brand were fortunate to have multiple retailers taking inventory when they arrived. They also had a direct e-commerce site where customers could always find them and place pre-orders, which eased the cash flow bottleneck.
While the aforementioned issues have consistently affected nearly everyone in retail, it appears Amazon brands that rely on Fulfillment by Amazon have been hit the hardest. Inventory restrictions, disappearing listings due to inventory shortages, loss of revenue – these are all challenges Amazon sellers are currently facing.
Related: 7 Things to Consider Before You Become a Seller on Amazon