Earlier this month, one of the largest shipping lines in the world, Hanjin Shipping Co., hit a major roadblock. After filing for bankruptcy, the company stopped loading new cargo on ships and was turned away from docking at major shipping ports. This left 73 out of their 141 ships stranded in the ocean carrying $14 billon in clothing, electronics, toys, and furniture.
Retailers and shoppers all over the globe will likely feel the effects of Hanjin’s financial crisis. As the seventh-largest shipping company in the world, it’s estimated that Hanjin ships carry about 25,000 containers across the Pacific Ocean every day, delivering a variety of consumer goods for large companies such as Amazon, LG, and Samsung. Now, trucking companies, railroads, and port terminals don’t want to work with the company for fear that they won’t get paid, creating a domino effect across the extended supply chain.
Unfortunately, this crisis came at a terrible time. Hanjin’s stranded ships are likely carrying products headed to retail shelves in preparation for the holiday shopping season. It’s a well-known fact that the runup to the holiday season, from Black Friday onwards, is make-or-break for most retailers. Sales during this period can account for up to 30 percent of total annual sales (National Retail Foundation), meaning this disruption just before the season kicks off is putting retailers in a dire situation. In fact, CNBC reported that Samsung asked a U.S. judge for permission to pay cargo handlers on Hanjin’s shipping vessels to remove its goods from the stranded ships.
Hanjin’s financial troubles will force companies to seek alternate sourcing and more expensive transportation strategies (i.e., air freight), to ensure they have products to meet customer demand and ensure the stockings are stuffed and presents are under the trees when December rolls around. But this could come at a large cost to retailers.
How to prepare
Supply chain continuity is key to the success of any organization, so no matter what the industry, companies need to be prepared for these kinds of situations. Whether it’s extreme weather conditions, economic instability, or the bankruptcy of a major shipping line, facilitating global trade is always a delicate balance and is extremely vulnerable to major disruptions.
Being able to leverage real-time data to predict supply chain disruptions and react accordingly is key to ensuring a streamlined supply chain, regardless of external circumstances. Organizations should also have the technology in place that can match supply to demand across their network quickly for responsive planning and what-if analysis. Further, natural disasters can be almost impossible to predict, so it’s important to develop a risk mitigation strategy that includes a strong network of suppliers, distributors, and transportation methods so products can be re-routed and/or alternatively sourced when normal processes are compromised.
What will this holiday season look like?
Retailers all over the globe have been thrown a curveball this season. Challenges in getting products to store shelves could drive prices up and make retailers unable to keep up with customer demand. Will this impact holiday sales?
As we start to see holiday decorations appear in malls around the world, it will become clear which companies had resilient, adaptable supply chains in place when the Hanjin crisis unfolded, and which retailers will see their profits adrift at sea, along with their products.
For more on how retailers can benefit from digitalization, see How Retailers Can Thrive In The Digital World.