Every year, post Labor Day, most of us are focusing on getting “back to work” and recovering from whatever the summer holidays brought our way. As the weather starts to cool, and the sports start to change, those of us who work in supply chain management, procurement, and shipping immediately turn our eyes to what has become the constant fourth quarter challenge: getting our companies through peak season with no delays or surcharges.
With the rise of the home online shopper, residential shipping, and Amazon’s next day standard delivery, the pressure on managing commercial shipping during peak season creates new challenges every year.
At Epec, we are already working with our counterparts at UPS to plan for any potential last-minute changes that can happen during peak season.
Working Alongside UPS During Peak Season
Epec has always been able to utilize our unique relationship with UPS to provide our customers with the most competitive shipping times and costs in our industry. Our 15-year partnership with UPS allows us to work through peak season with no disruption to our customers. Coming off the success of 2018, UPS has announced that in 2019 they will not be having residential peak season charges. Due to the UPS investment in infrastructure and technology, they have been able to expand their airfreight capacity. In 2018, UPS brought on 20 additional 747-8 and 767 aircraft. Additionally, they invested in super hubs, which can move almost 100,000 packages per hour. This increase in technology and capacity will allow UPS to process the projected increases in peak season packages in 2019. A new challenge that will face all the 3PL services in 2019 is that the calendar will be working against them. The typical retail peak season is considered to be from Black Friday to Christmas Eve. This year, that is only 27 days, which means all the carriers are going to be trying to move more packages than last year in 85% of the days that they had last year.
At Epec, we are already working with our counterparts at UPS to plan for any potential last-minute changes that can happen during peak season. The most common last-minute change is a limit to the pounds each manufacturing can ship per day. This will typically change on a daily basis. Being that we have the option of shipping from mainland China as well as Hong Kong, and we ship with UPS 365 days per year, this doesn’t impact our incoming shipments, and we are able to maintain just-in-time shipments to our customers.
Tariff Challenges
Similar to 2018’s peak season, the 2019 peak season will be impacted by tariff preparation. In 2018, the United States Trade Representative put List 3 of the Section 301 tariffs at 10% in September, with a Dec. 31 deadline before they would increase to 25%. Not surprising, many companies, Epec included, took advantage of that window to bring in as much of the Q12019 business as we could to reduce the amount of tariff costs we would have to absorb. And, 2019 will be similar. On Sept. 1, 2019, List 4a at a 10% tariff rate went into place. On Oct. 1, 2019, List 1-3 moved from 25% to 30%, and List 4a moved to 15%. On Dec. 15, 2019 List 4B will go into effect at a 15% tariff rate. The section 301 tariffs have created a volatile environment in our industry, as it is difficult to effectively plan when the cost of our products is changing so quickly, and there is little we can do to impact it. Right now, many supply chains are focused on getting as much product as they can before the end of 2019, while the costs are understood. Leading into 2020, the election year, it is difficult to predict what will happen with tariffs, and many people are erring on the side of the 25% devil we know.
The Chinese New Year begins Jan 24, 2020.
USA/China Holiday Schedule Challenges
What is unique to the 2019 peak season is the way that the calendar falls over the course of the next 6 months. In our industry, things are pretty cut and dry, make it through the vacation heavy summer, manage our way through peak season, have time off for our holidays, and when we come back have 2-3 months to plan for the Chinese New Year. This year that isn’t a luxury that any of us have. Due to the lunar cycle that the Chinese New Year follows, the dates this year are significantly earlier than the last several years. The 2020 Chinese New Year, Year of the Rat, will begin Jan. 25, 2020.
So why is this significant? For certain productions, namely printed circuit boards, the lead times can be as little as 3 working days coming out of Southeast Asia. For other products, such as batteries, which need to have a cell cure time, the lead time can be 6-8 weeks. With the official start date of the Chinese New Year being Jan. 24, facilities could start shutting down as early as Jan. 13, 2020. That puts us at the short end of releasing products around Dec. 16, 2019, to ensure products will be completed and shipped out before the shutdown.
The U.S. holiday calendar will be working against those of us in procurement, as we are facing shutdowns in November and December. The traditional model of being able to still place orders post-Christmas will be very difficult in 2020.
Summary
Every peak season brings its own unique challenges. Over the last five years, the core third party logistics companies have focused on growing the seasonal challenges and committed themselves to the expensive changes in infrastructure and technology that is required to meet these demands.
While 2019 has been full of uncertainty, due to the trade war, it has become increasingly harder to forecast customer requirements. Having to stay flexible for not only customer demands increasing, but also how quickly the tariff situation could change, requires those of us in supply chain management to not only be excellent at juggling, but also looking around every possible corner. People within my own organization will start to laugh as I mention the Chinese New Year in September, until I point out that it is only 70 working days from when this post was written. The amount of time left for us to adjust our sails is getting smaller, and the sooner we have our peak season/Chinese New Year plan in place, the better for everyone.
