Small businesses have their own set of supply chain challenges — and advantages

Small businesses are bracing for a holiday season of shipping headaches, too.

While large retailers have been responding strategically to get products to shoppers this holiday season, local crafters, makers and entrepreneurs have been thinking tactically for months about the same issues as their mainstream competitors.

“We are in for a wild ride,” Katie Stack, owner of leather goods company Stitch & Rivet, told Retail Dive in regards to shipping this season.

While the public may understand recent reports of supply chain problems and shipping delays, something that may not be fully understood is that shipping logistics are different for small sellers. Large retailers bulk up on seasonal employees to expedite fulfillment, yet many small businesses are doing all of that work by themselves, or with a shoestring staff.

Additionally, Amazon and other national retailers have shifted expectations on how quickly items will arrive at a buyer’s home, which can be very difficult to meet as a small seller. Once a product is out of the door and on its way to a client, there is no controlling what happens next.

Sellers like Stack are expecting another version of what happened during the unpredictable 2020 holiday season. “Shipping was really all over the place,” Stack said of that time. “I would ship an item, for instance, that was scheduled to arrive in Massachusetts, in say three to five days. But then for some reason it would end up in California.”

Prepping for the peak

There were warning signs of a potential shipping snafu emerging as far back as this summer.

In July, UPS said demand during the peak season of 2021 was expected to exceed capacity by about 5 million pieces per day. To mitigate the rush, UPS is adding capacity prior to the holidays, including 2 million square feet of additional sorting space and more cargo aircraft.

On its latest earnings call, the company touted its cooperation with its largest companies to navigate some of the congestion. “We began collaborating with our largest customers several months ago and we’ll stay in close contact with them during the holiday shopping season,” UPS CEO Carol Tomé said on the company’s Q3 earnings call last week. “Our technology allows us to match daily capacity with customer demand. And where we need to, we will again control the amount of volume that enters our network.”

The company also announced surcharges in order to keep up with rising demand. That’s significant because, as of the second quarter, small- and medium-sized businesses in the U.S. made up over 27% of the company’s total revenue — up from 20% last year.

And UPS isn’t the only company that has instituted peak shipping surcharges. Over the summer, the U.S. Postal Service announced it would temporarily raise commercial prices from Oct. 18 to Dec. 27 in response to “increased expenses and heightened demand” for e-commerce parcel delivery.

FedEx followed in the footsteps of its competitors, announcing it would institute surcharges for peak season from Oct. 4 through Jan. 16 in order to keep service levels high.

All of this matters because, just like major retailers, shipping expenses cut into the bottom line for small businesses. And those companies, especially mom-and-pop shops or small crafters, don’t have the clout or scale to negotiate with these services on price.

“It will be worse for small retailers as they often don’t meet the shipping volume quotas,” Gautham Vadakkepatt, director of the Center for Retail Transformation at George Mason University, said in emailed comments to Retail Dive. “Indeed this holiday season can be make and break for many of them due to rising pricing, labor shortages, and supply chain problems. On the flip side, due to almost certain shortages, there will be greater demand for products that small retailers carry, which can present growth opportunities for them.”

Cindy Liebel, founder and designer of Cindy Liebel Jewelry, is anticipating those price increases will impact operational costs. “The cost to ship on top of the increased surcharges, it does take a huge bite,” Liebel told Retail Dive. “I have added an additional dollar to shipping charges on my website to help cover that cost.”

And, it’s not just about the cost of shipping. Small business owners have to think about packaging materials, some of which are difficult to obtain right now. Stitch & Rivet’s Stack keeps a separate storage unit full of shipping supplies.

“A bunch of my eco-mailers had gone out of stock earlier this year, and so when they came back in stock over the summer, I ordered thousands and thousands of them so that I wouldn’t have to worry about it,” she said.

Liebel also stocked up on shipping supplies in late August and early September. “The company I purchased my shipping supplies from sent an email out sometime in August letting us know about price increases,” she said. “I went ahead and decided to stock up. I took a look at my numbers from the previous season … to get an idea of how much I use and to make sure I had enough of it.”

Liebel added that small businesses may not have the funds on hand to pre-order supplies, or there may be delays because packing materials are coming from overseas.

Post time: Nov-13-2021