It's a pre-holiday tradition for the supply chain community to wring its collective hands over peak season. This year, the anxiety is especially high—but not for the usual reasons. Rather than worrying about traffic snarls and customs delays, the community is concerned because, with the economy sagging, there hasn't been a peak shipping season to speak of.
Those concerns may not be entirely justified. Although it's often assumed that peak activity reflects the nation's overall economic vitality, some industry experts say that may be an outdated notion. Since 2004, those who follow supply chain trends have noticed a more even flow of freight throughout the year instead of a spike in volume in the fourth quarter. For a growing number of importers, "peak season" is starting as early as June.
That's partly because importers can now use sophisticated forecasting tools to plan inventory patterns more accurately, enabling them to order, ship, and warehouse with longer lead times than ever before. As the technology becomes more robust and affordable, businesses are pushing back their holidayrelated freight flows into late spring, smoothing out seasonal fluctuations and minimizing the post-holiday slump driven by credit card hangovers.
To be sure, the absence of a peak season in 2008 can be at least partly attributed to cyclical factors, notably weakening consumer demand that has forced retailers to keep a tight lid on inventories. Indeed, the U.S. economy is projected to limp into the fourth quarter with GDP growth of only about 1.2 percent. As the economy improves and spending increases, inventories will expand and peak-type surges will re-emerge. But long term, trends are in place that will effectively diminish the importance of peak season—and by extension, the concerns surrounding it, some experts predict.
For one thing, says Scott Szwast, director of marketing for UPS Supply Chain Solutions, ever-increasing security requirements will force importers to move their goods to market earlier if they want to avoid the risk of crippling customs delays in the fall. For another, advanced information systems now provide importers with shipment data in unprecedented depth and detail. Leveraging this technology, companies gain the confidence to order earlier in the year because they can see and manage exceptions that could potentially disrupt shipment flows, Szwast says.
Those two factors are leading importers to think differently about year-round planning and mitigating seasonal fluctuations.
"What you do for peak season is now part of your year-round strategy," says Szwast.
Paul Bingham, managing director, global trade and transportation practice for the consulting firm Global Insight, concurs that over time, improvements in process and technology will further dampen peak season's importance. However, he says that there will always be "demand drivers" such as "Back to School" and Halloween shopping periods that will trigger peak season-type ordering and shipping activities. "Retailers can put Halloween candy on their shelves in August, but people aren't going to buy [it] until October," he says.
Szwast and Bingham believe the shift away from seasonality bodes well for international supply chains. More orderly planning will lead to better communication, stronger supplier-importer relationships, a more equitable sharing of costs and burdens, and an enhanced capacity to make adjustments to inventory as demand ebbs and flows. "Importers will have the flexibility to make changes to their Q4 inventory well in advance of the period," says Szwast. "You no longer have to go to war just with the inventory you have."—Mark Solomon