With the Red Sea crisis continuing to cause havoc globally, Retail Week spoke to supply chain experts to find out how retailers can plan for Christmas and beyond.
Disruptions to global supply chains aren’t new as the Covid-19 pandemic, Russian war in Ukraine and more recently, the Red Sea crisis have all caused major issues for businesses.
In October last year, Houthis attacked international shipping in the Red Sea, which leads to the Suez Canal; this resulted in many retailers being forced to deliver goods around the Cape of Good Hope, causing delays and increased freight costs.
The past year has seen retailers such as DFS, Shoezone, Pepco and Matalan cite Red Sea problems in their financial results, while Asos and Boohoo turned to nearshoring from closer countries to avoid inflated prices and delays.
Some shipping experts believe the crisis could last well into 2025, but other factors such as climate change, labour shortages and strike action at US ports could have an impact in the months to come.
With this in mind, we explore the state of the supply chain ahead of the all-important Christmas season, and how retailers can navigate future challenges.
Ready for Christmas
While golden quarter preparations always start early, XPO Logistics managing director Dan Myers says UK businesses have had to start organising their supply chains as early as July due to “ongoing supply chain uncertainties, inflationary pressures, and intense competition”.
“Retailers most at risk from delayed shipments due to disruptions in the Red Sea include big box retailers, general merchandisers, fashion and apparel retailers, ecommerce companies and electronic retailers. Home improvement, furniture, and grocery retailers are also facing challenges,” he explains.
Though some retailers are at risk of delays, many would have learned from supply issues during the pandemic, leading to more proactive planning when other problems emerge.
Manhattan Associates senior director Martin Lockwood agrees that many businesses started preparations early to ensure sufficient stock and optimised operations.
“This early start allows for better inventory management, more effective pricing strategies in the face of economic uncertainty, and a competitive edge in a potentially strapped consumer market,” he says.
“Though the urgency isn’t as high as the pandemic years, businesses are prioritising readiness and flexibility now, so as to navigate any unforeseen challenges and maximise holiday sales opportunities.”
He warns that any vulnerability could lead to shortages of holiday gifts and higher costs, and that retailers must “proactively adapt” to mitigate damage.
‘Minimise future chaos’
One major detrimental effect of the recent Red Sea attacks is the cost of shipping. The Drewry World Container Index, which tracks the costs of 40-foot containers via eight major routes, shows the average cost of one container reached $3,095 (£2,381) in October 2024, a massive increase from $1,390 (£1,069) in October 2023.
A solution many are opting for this year is nearshoring, which allows businesses to ship from nearby countries, but Myers says this isn’t a quick fix.
“This is a long-term strategic decision considering multiple factors, from the long-term cost of manufacture and supply to sustainability and supply chain resilience,” he explains.
Relex Solutions group vice president of manufacturing Madhav Durbha believes nearshoring can “improve lead times and enhance supply chain resilience against global disruptions”, but it needs to be done correctly.
“Achieving resilience hinges on establishing robust partnerships with multiple suppliers and improving data sharing between trading partners to facilitate joint planning.
“If done right, nearshoring can mitigate the risk of geopolitical instability associated with offshoring.”
A crucial thing for retailers going forward is to ensure their supply chains are adaptable for whatever crisis they encounter.
Durbha says through demand sensing and AI tools, businesses can react to issues they anticipate and address them before they become major problems.
“Businesses must also understand that disruptions are part of the new normal,” he explains.
Many have started to adopt principles that make them best-in-class, allow them to achieve operational excellence and be nimble while running an efficient operation.
“Using AI and Machine Learning driven solutions enables that by bringing a high level of automation to a business’ operations.”
Automation could come as a welcome aid for retailers navigating challenges beyond the Red Sea, as other geopolitical tensions, labour shortages, capacity constraints, climate change and cyber threats are all having adverse effects on supply chains.
Lockwood says there is more retailers can do to minimise future chaos, such as prioritising inventory management to limit risk of overstock and being transparent with customers about delays or price hikes.
“Investing in long-term supply chain resilience through onshoring or nearshoring, automation, improved planning and execution capabilities and a more resilient digital core will make brands more capable of better-mitigating future inevitable disruptions.”
While some retailers may have found solutions to pre-plan for the busy Christmas season, more needs to be done to ensure supply chains are agile for whatever global crisis materialises.
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