How Continued Market Volatility is Shaping Supply Chain Strategy

Shippers that can remain flexible and agile in anticipating and reacting to evolving consumer trends, rather than relying on past seasonality, will be well-positioned for success in 2021 and beyond.

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Before 2020, consumers were already paying closer attention to where their food comes from. With growing trends around food safety, ethical production practices and nutrition, visibility into sources of romaine lettuce, beef or coffee beans became a value add. As a result of the Coronavirus disease (COVID-19) pandemic, awareness of the complexity and interdependence of the global food supply chain has increased significantly, as consumers become more concerned with product availability and access.

The infrastructure that supports the journey of food and beverages from farm to grocery store to table has proven resilient amid months-long disruptions. Still, the complex logistics involved in feeding the nation and the world will see long-term shifts as market volatility continues to create spikes in demand and the economic impact of the pandemic evolves. While food producers and grocery stores have applied learnings from the spring to mitigate the risk of panic buying, off-trend consumer behavior persists during a busy holiday season and continued COVID-19 complications. 

Suppliers, manufacturers and retailers are in a state of prolonged adjustment to efficiently coordinate the shipment of high demand goods and avoid another round of depleted retail shelves. While businesses across the food and beverage industry have increased sales during the last several months, they are also facing unique challenges with consumers. 

New market demand

Both the social and economic upheaval created by the COVID-19 pandemic will continue to be an issue for the foreseeable future. At the same time, the pandemic has boosted segments of the economy in unforeseen ways, with the tradeoff that more strain is put on supply chains.

With many office workers shifting to an at-home operation during the workweek, dog adoptions skyrocketed. For dog food manufacturers, this meant a significant increase in demand from new customers. One major dog food manufacturer had to shift production to new plants to handle the demand surge and secure shipping capacity to meet a 300% increase in freight volumes.

While a surge in pet ownership had new dog owners scrambling to find food to feed their new pets, other consumers shifted their family meal habits, opting to prepare meals at home rather than dining out. As the traditional holiday baking season beings in the U.S., manufacturers of the staple ingredients of baked goods are being strained at a time when these products have seen already heightened demand. One major butter manufacturer has increased truckload shipment volumes by nearly four times its usual capacity to meet the demand.

As we look ahead to the New Year, some of the product demand trends we’re seeing will normalize, especially with a positive outlook for a vaccine. That said, decision-makers across the food and beverage supply chain are remaining cautious to prolonged market volatility. A vaccine could cause further capacity strain that could impact the shipment of other goods and other unforeseen disruptions could appear. At this point, food and beverage manufacturers can’t rely on past trends or seasonality to predict consumer behavior.

Forward stocking and shipping capacity

After experiencing stock-outs earlier in the year, many companies are pulling forward as much stock as possible to meet peak holiday demand. We don’t know the exact details of lockdowns or shelter-in-place orders this winter, so it’s possible that we might experience another whiplash of capacity crunches. Many customers are looking for help to prepare for potential shifts in consumer behavior depending on different pandemic scenarios.

Pulling stock forward can mean having product on hand where demand doesn’t yet exist, but requires moving products through already backed up ports. Companies are scrambling to find alternatives to railroad transport, as well as available warehouse space and truckload capacity. Products have started hitting distributions centers surrounding ports, and given the pandemic, there isn’t enough rail capacity to support the volume. As a result, we’re seeing sustained truckload volumes like we haven’t seen before.

This surge in products being pulled forward is intended to mitigate shortages. Yet it creates another wrinkle in the supply chain to manage, and potentially could lead to more time spent managing delays and finding alternatives to move products across the supply chain. With so much volatility in the market, companies are reevaluating supply chains and oftentimes need help navigating difficult decisions.

For the food and beverage industry, we can anticipate many of the consumer trends that have evolved in pandemic times to persist. More people are likely to eat at home and entertain smaller groups in the short term. Demand for foodservice and delivery may normalize over time, but we’ll have to wait and see if there’s a significant shift in consumer behavior in buying more groceries and preparing meals for themselves. 

In any case, the industry will need to continue to adjust and prove resilient to disruptions to the supply chain. Shippers that can remain flexible and agile in anticipating and reacting to evolving consumer trends, rather than relying on past seasonality, will be well-positioned for success in 2021 and beyond.