February 10, 2022
After the Boom - Evolving E-Commerce Supply Chains
The boom in consumer spending during the pandemic has been accompanied by a surge in shopping via e-commerce during store closures. There are signs that the trend has started to reverse, driving uncertainty throughout logistics operations. At the same time the seasonality of e-commerce sales is proving changeable, suggesting a flexible approach to logistics network construction remains vital as the pandemic progresses.
Pandemic Retail Sales and the Trade Boom
Consumer spending has been elevated throughout the pandemic in most countries, as discussed in Flexport’s November 5 research. This can be tied to a shift to buying goods rather than services at the same time as governments have underpinned incomes. As we enter the third year of the pandemic, Flexport's Post-Covid Indicator has shown, to date, that spending on goods in the US remains well above pre-pandemic levels, maintaining pressure on retailers.
The expansion in demand for consumer goods has been a primary driver of logistics network congestion, as discussed in Flexport’s Logistics Pressure Matrix, with few signs of a let-up at the start of 2022.
The latest retail sales figures for the U.S. show that while seasonally-adjusted sales dipped by 2.5% in December 2021 versus November 2021 they remained 21.2% above the pre-pandemic level of December 2019. As shown in Fig. 1, retail sales in China and the United Kingdom also remain above pre-pandemic levels, albeit at a more modest 7.9% and 2.0% respectively.
E-Commerce Share Expands Then Contracts
Traditional retailers have not only had to deal with shipping an enlarged volume of goods through congested international logistics networks. They’ve also had to deal with a rapid expansion of online sales at the expense of in-store sales. Additionally they’ve had to handle the rise of direct-to-consumer brands that have taken market share.
Flexport’s analysis shows the proportion of retail sales in the U.S., U.K. and China have all increased markedly versus pre-pandemic levels, but have dipped recently. Looking at data for the United States, non-store sales reached 19.3% of total sales (ex autos) in December 2021, as shown by the green line in Figure 2. That was above the 18.3% level seen in December 2019 but below December 2020’s 20.1%.
In the case of the U.K. there’s a similar pattern, shown by the red line, with internet sales at 23.3% of the total in December 2021 compared to 15.5% in December 2019 but below 27.3% in December 2020.
Data for China, read around Lunar New Year interruptions, show a less extreme pullback in online sales to 27.4% of the total from 27.5% a year earlier. That may reflect the continued challenges of the zero-COVID policy compared to the reopenings seen in the U.S. and U.K.
Seasonality Proves to be Changeable
E-commerce sales are not immune to the seasonality issues that beset the consumer goods industry more generally.
In the case of the United Kingdom there’s evidence that 2021 has actually seen a less “seasonal” fluctuation for non-food, non-fuel retailers than 2020 or previous years. This can be seen in the green line in Fig. 3 which is flatter than in prior years. That’s a contrast to the expectations in other countries that consumers would front-load their purchases to avoid shortages.
To quantify the change, in 2021, measured on a weekly average sales basis, sales varied in a range of 82% to 130% of the full year average each month, as shown by the green line in Fig. 3. In 2020 the range was 55% to 178%, which is partly due to the impact of pandemic-related lockdowns.
The data also shows that 2021 is less seasonal than the 2017-2019 period which ranged from 80% to 158%. Our crystal ball doesn’t extend to seeing whether 2022 will be more like 2021 or whether a reversion to the prior mean will occur.
Flexibility Matters More Than Ever
Both traditional and direct-to-consumer retailers are beset by a range of challenges at the start of the third year of the pandemic. The total level of spending by consumers on goods remains elevated versus pre-pandemic levels but with no guarantee this will last. The share of online spending versus instore is above pre-pandemic levels, but is already in decline. The old patterns of seasonality in online sales remain disturbed. Logistics networks may well remain congested throughout 2022 as these uncertainties unwind.
There are no easy answers to dealing with these issues. Flexibility in supply chain and logistics network construction remains the obvious answer. The ability to scale sourcing up and down at short notice can deal with the seasonal and spending uncertainties.
It’s never too late to implement a rethink of logistics network construction for traditional retailers as well as web-first firms. Potential actions include: diversifying modes of transport to ensure goods arrive on a smooth rather than lumpy basis; utilize a wider range of ports and delivery points to build resilience; invest in improving visibility across the logistics network; use data to debug warehouse bottlenecks; and consider locating close to customers.
We’ll be covering post-pandemic supply chain strategies in detail in future reports.
Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.