Who holds the pricing power in today’s transportation market — the carrier or the retailer? Deanna Kaufman, vice president with enVista, describes the shifting dynamic between the two.
Shipping costs have exploded over the past couple of years, especially as they pertain to the e-commerce channel. When the COVID-19 pandemic began, everyone “hunkered down” and used their discretionary funds to purchase consumer goods, Kaufman says. That led to a huge uptick in shipping volumes and freight costs. But as the pandemic began to abate, and people resumed spending on services such as restaurants, good purchases began to ease.
For a while, says Kaufman, it was a “revenge of the carriers” scenario, as they imposed penalties for late payments and took advantage of the capacity squeeze. Now, however, carriers’ pricing power is starting to weaken. Freight costs remain relatively high due to inflation and rising fuel costs, so retailers have yet to fully regain pricing power, but Kaufman expects to see that dynamic continue to shift in their favor in the months ahead. “Eventually, transportation costs will abate,” she says.
Retailers continue, however, to suffer from the bullwhip effect, a term that describes the compounding of disruptions and glitches that occur throughout the supply chain. Retailers will likely be forced to bleed off some inventory, especially items that have gone out of season, and will be judicious about future purchases. “Inventory is one of the biggest concerns that retailers are facing,” Kaufman says.
To get a grip on their transportation spend, retailers need to be looking at the total cost of ownership. For many companies, Kaufman says, transportation exists as a single line item, without any visibility into its components. Yet supply chain costs account for a substantial portion of overall expense, so companies need to understand their transportation expense all the way down to the unit level, she says.