Red sea updates, holiday returns battle fraud, and shipping mergers shake up the freight world
Greetings,
Happy Lunar New Year to all CBIP partners!
This past month, the situation in the Red Sea turned the freight market on its head. We looked at how holiday spending stacked up compared to previous years, issues surrounding the usual post-holiday barrage of returns, and saw an important merger between two of the world’s largest shipping giants.
With a portion of the world’s shipments rerouted to avoid the Suez Canal, adding to the logistics freeze the Chinese New Year brings yearly, supply chains are in an uncertain place.?
For the time being, supply is high and demand is fairly low, meaning there is little impending danger of stockouts. However, we will have to see what happens as the situation in the Red Sea develops over the next few months.
Let’s get into it.
Effects compound as Red Sea situation continues
As 90% of major shipping lines continue to reroute their shipments around the Cape of Good Hope, the effects of Red Sea turmoil became increasingly pronounced this past month. Given the nearly doubled time at sea rerouted ships are facing, the ocean freight industry is now once again dealing with a container shortage.
The effects are already taking hold on more than the most directly influenced Asia-Western Europe routes. Ocean freight rates have risen going to the east coast of the USA at a rate of nearly $1800/week.
However, unlike the container shortage of pandemic heights, this one is not driven by high demand. Ocean freight rates are most likely rising temporarily because the pre-Chinese New Year shipping rush has coincided with the attacks in the Red Sea.
Compounding that with the issue of rising fuel prices as tankers normally carrying oil through the canal reroute, prices could rise significantly if the situation continues into the coming months. However, given the fact that supply is high and demand low, it will take a little while before we see major effects at checkout.
Online holiday spending jumped nearly 5%
Per Adobe Analytics, online spending rose 4.9% YoY in January.
Despite a year of inflation and rising prices, consumer confidence rose just enough to make more online purchases around peak season than ever before. Relaxing inflation and a healthy jobs market are part of the equation, but a couple of other factors help make the holidays financially easier for consumers as well.
One of those was deep discounts. Spending during Cyber Week (the week surrounding Black Friday and Cyber Monday) accounted for ? of total November/December spending, showing just how eager patrons were for a good deal.
Another key trend was one we already discussed last month — the rising popularity of Buy Now, Pay Later. Financing options are increasingly available online, and customers flocked in record numbers to take advantage of BNPL plans this holiday season.
Holiday return scams rock retailers in January
According to the National Retail Federation, returns accounted for? 14.5% of total purchases last year. The same study shows that around 13.7% of those returns were actually fraud.
As e-commerce has risen in popularity, so too has the popularity of fraud. Comparing typical retail store fraud like counterfeit receipts and shoplifting to the ease of simply claiming your package never arrived, it's easy to see how this has become an issue.
The cost of fraud is increasingly adding to the already high costs of shipping and processing returns, which already account for around 21% of an order’s value on average. The question is, how can you stop customers from lying about lost packages, or from “returning” a stolen or older item?
Unfortunately, the most effective anti-fraud tactics are the ones that bring down the shopping experience for everyone; ie, shortening return windows and limiting refunds to store credit.
?With limited ways to find out where and when fraud is happening, retailers have no choice but to strike a balance between attracting customers with a transparent return policy, and avoiding overspending on returns processing.
Australian ports reach a deadlock
Unionized port employees have not been able to reach an agreement with terminal operator DP World, which controls an estimated 40% of container volume going out of Australian ports.
?The strikes, which have been in effect for months now, are starting to cause serious delays for Australian businesses; yet, recent news shows that the government is unwilling to intervene to help things along.
Current shipping delays out of Australia are estimated at 2 to 8 weeks, and things will only get worse if the situation drags on much longer.
M&A News
Maersk and MSC’s 2M Alliance will come to an end in February 2025, replaced by a partnership between Maersk and Hapag-Lloyd alliance, deemed the Gemini Cooperation.?
Maersk purportedly ended its previous alliance with MSC to focus more on end-to-end supply chain solutions, rather than strictly ocean freight. Many did not expect that the company would form another ocean alliance for this reason; however, it seems that their tactic has shifted.
While the effect this new alliance will have on global trade routes is unknown, the companies have named increased efficiency and sustainability as their foremost goals going forward.?
From CBIP
We’ve published the following blogs this last month. Give them a read if you have a couple of minutes.
And my latest article about the situation in the Red Sea on LinkedIn:
Want daily updates from CBIP? Make sure to follow me via Twitter (@Nbartlett_CBIP) and CBIP (@CBIPLogistics) for thoughts and conversations on the industry every week.
Until next month,
Nick Bartlett