In case you hadn’t noticed, everything is getting more expensive. From the gas pump to the grocery store and just about everywhere in between, the higher cost of living we have been experiencing during the pandemic just won’t seem to let up. This is becoming acutely painful in supply chain circles, where transportation and warehousing costs have risen sharply in the past year and a half as demand has skyrocketed and capacity remains tight. In some ways, it has never been more expensive to ship and store products—and consumers are expected to feel the pinch this holiday season.
Heading into the fall, the Logistics Manager’s Index (LMI)—a monthly measure of supply chain business activity—recorded some of the highest transportation and warehousing prices in its five-year history. Prices have risen sharply since the spring of 2020 and are set to remain high through peak shipping season and beyond, according to LMI researchers.
“It seems likely that the tightness and high costs we have observed through the summer will continue into the fall,” LMI researcher Zac Rogers wrote in early September, adding separately that forecasts point to more of the same over the next 12 months. “Similar to what we have seen [recently], everyone is predicting high costs.”
The American Trucking Associations (ATA) echoed those sentiments about a week later when issuing a report on the rising cost of fleet maintenance and repairs. According to data from ATA’s Technology & Maintenance Council, labor costs for repair and maintenance increased nearly 3% between the first and second quarters of this year, and overall parts costs grew by almost 3% during that time. In the same period, parts costs for tires increased by nearly 11% and transmission parts costs rose 9%. In the second quarter alone, year-over-year costs for lighting systems, transmissions, and brakes were all in the double-digits: 17%, 16%, and 11%, respectively.
“The increases in costs for parts and labor reflect the changes taking place in the North American economy,” explained Dick Hyatt, president and CEO of technology firm Decisiv, which partners with ATA to collect the data. “Ongoing economic growth has led to a rise in freight volume and demand for carrying capacity. That is also being driven higher by the need to replenish supply chains that have been depleted due to manufacturing and distribution shutdowns during the pandemic.”
The snowball effect rolls on. I’ve written here before about the ways in which the supply chain has “come home” since the beginning of the pandemic, when panic buying, product shortages, and increased demand for home delivery all helped shine a light on the vital role the industry plays in our lives. As costs continue to rise, we’re likely to experience another homecoming as companies—especially retailers—look for creative ways to pass those costs along to consumers. In an interview for this month’s story on risk management, I spoke to Spencer Shute of procurement and supply chain consulting firm Proxima Group, who said we are likely to see this play out in the shipping arena in the coming months. The days of fast, free shipping on just about everything are likely to be sidelined in favor of new policies that place conditions on free shipping—things like spending minimums, early orders, and slower shipping routes.
“Those are things retailers will have to consider,” Shute told me. “Retailers are going to start passing more of that cost on to customers—but in more creative ways.”
You may have experienced this already, as I did when doing some last-minute back-to-school shopping for my teenage daughters in September. The free one- or two-day delivery service I’d become accustomed to on some platforms wasn’t an option, so my poor planning meant paying a little extra for fast service or waiting a few more days for the order. As consumers, we can adapt to this change by ordering earlier and better anticipating future needs—in some ways, the equivalent of employing better risk management strategies. But you can’t plan for everything, and when those increased shipping costs come on top of higher product prices—well, things add up.
Even if you can afford a few extra dollars here and there, the situation is downright annoying. I guess that’s true whether you’re managing a supply chain or a household.
Wreaths Across America