Supply Chain Profits Surge as the Holiday Season Approaches

Amazon, DHL, FedEx, and 12 more companies are gaining huge profits as retail supply chain demands are at the peak.

As the holiday season approaches, the U.S. supply chains seem to be facing an irresolvable logjam situation as consumers spend more on physical goods, thereby laying pressure on the logistics networks. This unprecedented demand for supply chains comes at a time when the COVID-19 vaccine distribution strategy is picking up pace across various delivery frontiers. 

As the pressure continues to pile up on logistics networks, it could leave retailers short of supplies and consumers empty-handed this Christmas. However, a few companies that are well-positioned with proper supply chain management are earning major profits during the peak of the supply chain demands.

“We’re not going to sporting events, we’re not going on vacation,” Brian Bourke, the chief growth officer of Seko Logistics, told Business InsiderOpens a new window . “What we’re doing instead is we’re buying things. We’re renovating our homes. We’re buying patio furniture, we’re buying sports equipment, exercise equipment, bikes, consumer electronics, phones, and anything involving a home office or a home remodel. I think desks are the no. 1 commodity right now, but it’s all flying off the shelves.”

The current trend suggests that the demand from consumers for certain products is so high that cargo, which was previously imported by sea, is now being flown in, accompanied by a great expense. “We’re flying hot tubs,” Bourke said. “You couldn’t make it up.”

Shortages of truck drivers and warehouse workers have been quite prevalent during the pandemic. Express-delivery companies are operating at full potential. Shortages of empty containers and the lack of trucking options have caused shipment delays in parts of the U.S.

As demand exceeds the supply and customers are more inclined towards paying premiums for guaranteed delivery, the freight and logistics business is racking up profits amid the supply chain chaos.

Also Read: 7 Modern Integration Methods for Supply Chain Autonomy – Part I

Financial Gain Over the High Seas

As the year 2020 has progressed, global container volumes have shrunk. However, this hasn’t impacted the world’s leading container lines, as they seem to be taking full advantage now as the global supply chain demands continue to skyrocket.

The cost of shipping a container from China to the U.S. West Coast is about three times as expensive as it was in the previous year. Yet, the space on the vessels received at the U.S. shores is now sold out. This sums up the current situation where demand clearly overwhelms the supply. 

Those in the freight forwarding business are now suggesting shippers to book capacity well in advance and still have a buffer for expected delays. Another task set out for U.S. exporters is finding empty containers for exporting goods, as carriers send empty boxes back to Asia to pick up high-paying cargoes destined to land in the U.S.

According to data posted by Maersk, the largest container line, it has observed a mind-boggling 82% year-over-year increase in third-quarter net income. 

Further, Hapag-Lloyd, the fifth-largest container line, has seen its third-quarter profits leap 68% this year compared to the figures collated in 2019. Furthermore, ONE and Cosco Shipping Lines also saw their third-quarter net profits grow by 30% and 51%, respectively.

Also Read: How the Second Wave of COVID-19 Could Further Pressurize the Global Supply Chain

Air Cargo With Booming Revenues

Airlines with cargo planes in their fleet seem to be covering up for the offset losses due to the shutdown of passenger operations during COVID-19. After a dull summer, charter and spot freight prices have again surged to record levels, as seen in the pre-pandemic times. However, as this pattern goes into 2021, prices are expected to increase at the backdrop of the vaccine rollout.

According to the industry association IATA, this would cause a considerable spike in the airline cargo revenues, which are set to reach a near-record $110.8 billion, up from $102.4 billion in 2019Opens a new window . Although the passenger jets were off the shelf in 2020, airlines cargo revenues are set to reach record highs.

According to American Airlines, as passenger flights were grounded during the pandemic, it suffered a $3.1 billion loss in the third quarter. However, the carrier doubled its cargo-only flights from August to September, thereby allowing the airlines to increase its cargo yield per ton-mile 84%, to 62 cents. The logistic division of another renowned airline, Lufthansa, which had suffered a third-quarter 2019 loss of $58 million, turned it into a $201 million profit this year.

According to Cathy Roberson, the president of the consultancy Logistics Trends & Insights, “We see a lot of the passenger airlines, the domestic passenger airlines like United and Delta, reporting pretty good numbers for their cargo divisions, and I think that’s going to continue.” She expects more U.S. airlines to venture into the cargo market, looking at the profit margins earned by some well-known airlines. Besides, vaccine deliveries are just around the corner, which may tempt some airline industry players with enough capacity and expertise to meet the strict delivery requirements.

Also Read: What To Expect from Supply Chain When Biden Becomes the President?

Transport Prices Keep the Truckers Afloat

The trucking business and railroad companies in the U.S. are also earning handsome profits as transport prices rise. The Phoenix-based largest truckload carrier in the U.S., known as Knight-Swift, has reported having had its Q3 profits beat estimates. The company also expects inventory stocking to continue supporting an uplifting freight environment as it sees the dawn of 2021 along the horizon.

According to Jim Monkmeyer, president of transportation at DHL Supply Chain, U.S. trucking spot prices have seen an uprise between 50 and 60% since the beginning of June. Monkmeyer further added that capacity was available for entities willing to pay premiums. “The challenge is that there are companies out there like Amazon just buying at two to three times [the going] rate.”

Supply chain blockages also seem to benefit the parcel-delivery industry. Some of the parcel carriers have integrated new peak surcharges into their system so that they earn well, and on the other hand, some have stopped accepting new customers through the end of the year, as the demands continue to rise.

Also Read: Why Supply Chains Struggled To Implement Robotics During COVID-19

Beneficiaries of the Current Freight Market: Amazon, Target, and Walmart

Amazon, Target, and Walmart have made the most of the current freight market. All three companies have invested heavily in supply chain capacity; they have been making additional efforts to give the customers a last-mile delivery or even provide curbside pickup facilities, which are needed to fulfill the ever piling ecommerce orders.

“UPS and FedEx are also coming out as winners,” Roberson said. She predicted that global logistics players such as Kuehne + Nagel, DSV, Expeditors International, and DHL would continue pulling hefty profits. “Those in international markets, their overall revenue may be down from a year-on-year perspective, but profits are up,” she said.

Atypical Freight Pipeline and Supply Chain

The freight pipeline and supply chain crunch show no signs of easing out anytime soon.

Although the National Retail Federation expected final port figures to show that the July-to-October peak container-import season in 2020 surpassed all records, the business inventory-to-sales ratios continue to stay at relatively low levels. This prompted analysts to predict that larger cargo volumes would continue to enter the freight market as we head into 2021. DHL, another parcel carrier, is now asking importers to book well in advance to ensure timely delivery.

The National Retail Federation’s Jonathan Gold said cost hikes in the supply chain had taken retailers by surprise. “It does impact the bottom line,” he said. “Retailers are trying to avoid as much as possible passing those costs along to consumers.”

As the U.S. lacks the supply chain capacity currently, plenty of businesses and consumers will be disappointed this Christmas. “We’ve warned people to buy early,” Monkmeyer said. “But people will roll the dice, and some will lose and not have gifts under the tree at Christmas.”

Also Read: 90% CPGs To Modify Their Supply Chain Due To COVID-19: Microsoft and Bain & Co. Study

In Conclusion

As the world grapples with the pandemic, there has been a fundamental shift in consumption patterns in 2020, as buyers spend more on physical goods, thereby ramping up the pressure on logistics networks. With the surging ecommerce demand, companies such as FedEx, UPS, and DHL are scaling up capacity and reaping rich rewards. However, a shortage of truck and van drivers could force the delivery of many holiday presents until New Year’s Eve.

Will the supply chain boom die down with the pandemic easing out in 2021? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!