Retail Supply Chains

Shippers have less than two weeks to prepare contingency plans for if workers strike at East Coast and Gulf Coast ports in the U.S.

Composed of 85,000 members, the International Longshoremen’s Association is approaching the expiration of its master contract with the United States Maritime Alliance, or USMX, on Sept. 30.

The union’s chances of averting an Oct. 1 strike are dwindling as automation concerns and wage disagreements stall negotiations. ILA President Harold Daggett has been clear about the union’s intentions to strike and shared a strike mobilization plan earlier in September.

A strike would have a major impact on operations and the flow of goods at several ports. The contract between the ILA and USMX covers ports in states such as Texas, Maine, New York, New Jersey and Florida, but a strike could spur disruptions for other regions and industries.

“Shippers with freight across Europe, Oceania, and Asia bound for the U.S. will especially feel the impact, which would cascade to disrupt the flow of freight across the U.S., Canada and Mexico,” C.H. Robinson Director of North American Ocean Mia Ginter said in a blog post in August.

Supply Chain Dive spoke to shipping and logistics experts about what actions shippers can do to prepare for the event of a strike including how to reroute cargo and other considerations.

How can shippers prepare for a strike?

There are several options for shippers to minimize disruptions, such as exploring alternative shipping routes.

Importers and exporters can establish a multi-coastal transportation network in advance of a potential labor disruption, Kuehne and Nagel EVP of Sea Logistics Michael Aldwell said in an email.

“This can take the form of a transload capability or operation or an alternate coast gateway at smaller volumes that can be scaled in the event of a disruption,” Aldwell said.

Another option, familiar to shippers after years of port disruptions, is to divert cargo. Cargo can be shifted to ports along the U.S. West Coast, Canada or Mexico, Josh Jungwirth, EVP of Freight Forwarding for the Americas Region at Geodis, said.

The choice on what alternative ports to use depends on factors like cargo origin and destination, shipping lanes and available capacity, Jungwirth said.

Is airfreight a viable alternative?

Airfreight is a transportation option shippers have for time-sensitive shipments that would be disrupted by a strike, but it comes at a higher cost and with some capacity concerns.

The average air cargo spot rate spiked 24% year over year in August to $2.68 per kilogram, according to a Xeneta report from Sept. 5.

“Shippers considering air should keep in mind that passenger flights will be reduced between the current busy summer travel season and October. Right now, air capacity is already limited due to increased demand from e-commerce from Asia and Red Sea diversions,” C.H. Robinson’s Ginter said.

Giant e-commerce retailers Temu and Shein have driven this recent surge in air cargo demand. In July, the retailers each provided carriers with about 900,000 packages daily in the U.S., according to ShipMatrix data shared with Supply Chain Dive.

Heightened airfreight booking activity from Temu and Shein is exacerbating a capacity crunch throughout the market, Kathy Liu, VP of Global Sales and Marketing at Dimerco Express Group said in an episode of The Freight Buyers' Club podcast. There are only a few freighters available on the open market, which further tightens the availability of air cargo options for other shippers, she said.

What type of cargo will be affected?

All types of cargo would be impacted if a strike were to happen, but it would have an outsized effect on commodities that rely on the just-in-time inventory model, such as automotive parts.

“Considering the challenges that could arise on the export side, chemicals and agricultural goods would become the most impacted cargo in the short term,” Joshua Bowen, global ocean leader at CEVA Logistics, said in an email. “From an import perspective, any supply chain that is heavily reliant on cargo flows from the Middle East, Europe and Africa (MEA) would have challenges, so we would expect impacts in the industrial and automotive sector specifically.”

Even seasonal items may be affected, Goetz Alebrand, SVP and head of ocean freight at DHL, said in an email. This includes items for Black Friday or the holiday season as well as temperature-controlled items that have a limited shelf life, Alebrand said.

Is it too late to take action?

Experts were mixed about whether it’s too late to enact strike contingency plans, but most agreed the longer companies wait, the more expensive adjustments can become.

“The key challenge is, if you want to make contingency plans or re-routings until a disruption occurs, it will be very difficult and expensive to find the capacity and partners needed,” Aldwell said.

It could also be too late depending on the origin of cargo, according to Freightos Head of Research Judah Levine. In a Sept. 10 update, Levine said it’s “about past the deadline” to move containers from Asia to the East Coast before a strike, while Transatlantic shippers still have a little time left to move containers. This is because it takes much longer to ship from Asia than from Europe to the U.S. East Coast.

Even moving cargo to alternate ports may not be enough for shippers to avoid major challenges if a strike occurs.

“While many shippers have already started to use these solutions, they are only ad-hoc solutions, because if there is a true slow down or stoppage, neither of these options are sufficient to handle the needed volumes,” CEVA Logistics’ Bowen said.

Lastly, even shippers re-routing cargo to the West Coast brings forward the issue of inland capacity. Without prior planning, East and Gulf Coast cargo diverted is far less likely to be prioritized for domestic intermodal truck or rail services, Ginter said.

“In addition to capacity and delay concerns, warehousing space may be necessary to store rerouted freight until inland capacity is available,” she added.

The International Longshoremen’s Association initiated a strike Oct. 1, shutting down dozens of ports on the East Coast and Gulf Coast and rallying tens of thousands of union members to the picket line.

The union had been threatening to strike amid tense master contract negotiations with the United States Maritime Alliance, or USMX. Talks have stalled on two key issues: wage increases, for which the ILA wants a $5 an hour increase for each of the six years in a new master contract, and the use of automation at ports. ​

Here are some excerpts of what trade associations and government officials are saying about the strike.

President Joe Biden

“Ocean carriers have made record profits since the pandemic and in some cases profits grew in excess of 800 percent compared to their profits prior to the pandemic. Executive compensation has grown in line with those profits and profits have been returned to shareholders at record rates. It’s only fair that workers, who put themselves at risk during the pandemic to keep ports open, see a meaningful increase in their wages as well.

“As our nation climbs out of the aftermath of Hurricane Helene, dockworkers will play an essential role in getting communities the resources they need. Now is not the time for ocean carriers to refuse to negotiate a fair wage for these essential workers while raking in record profits. My Administration will be monitoring for any price gouging activity that benefits foreign ocean carriers, including those on the USMX board.

“It is time for USMX to negotiate a fair contract with the longshoremen that reflects the substantial contribution they’ve been making to our economic comeback.”

The International Brotherhood of Teamsters President Sean O’Brien

“The ocean carriers are on strike against themselves after failing to negotiate a contract that recognizes the value of these workers. Our ILA brothers and sisters play a critical role in keeping the American economy running, and they deserve industry-leading wages and robust job protections for the vital work they perform.

“Don’t forget — Teamsters do not cross picket lines. The Teamsters Union is 100 percent committed to standing with our Longshoremen brothers and sisters until they win the contract they deserve.”

National Association of Manufacturers President and CEO Jay Timmons

“Manufacturers call on President Biden to intervene by invoking the Taft-Hartley Act, which will force ports to resume operations while negotiations continue.

“There will be dire economic consequences on the manufacturing supply chain if a strike occurs for even a brief period. NAM estimates show a strike at the East and Gulf Coast ports would jeopardize $2.1 billion in trade daily, and the total economic damage could reduce GDP by as much as $5 billion per day.”

New Jersey Business & Industry Association President and CEO Michele Siekerka

“While we have a very healthy respect for the collective bargaining process, the fact of the matter is the stakes are too high for New Jersey and the rest of the nation to be subject to supply chain shortages, higher prices and delays in goods reaching households and businesses.

“It’s critical that the federal government keep a close watch on both the ILA and the U.S. Maritime Alliance as negotiations continue — and to not wait long to invoke the Taft-Hartley Act if it appears this impasse cannot be resolved in short order.”

National Retail Federation President and CEO Matthew Shay

“NRF urges President Biden to use any and all available authority and tools — including use of the Taft-Hartley Act — to immediately restore operations at all impacted container ports, get the parties back to the negotiating table and ensure there are no further disruptions.

“A disruption of this scale during this pivotal moment in our nation’s economic recovery will have devastating consequences for American workers, their families and local communities. After more than two years of runaway inflationary pressures and in the midst of recovery from Hurricane Helene, this strike will result in further hardship for American families. The administration must prioritize our economy — and the millions of Americans who depend on it for their livelihood and wellbeing — and intervene immediately to prevent further hardship and deeper economic consequences.”

National Association of Wholesaler-Distributors President and CEO Eric Hoplin

“The East and Gulf Coast port strike is putting our economy and national security at risk. This strike isn’t just about disrupting a few shipments; it’s about stopping the supply chain and bringing the flow of critical goods to a standstill.

“The damage could reach $5 billion a day, with small and mid-sized businesses at risk due to missed deliveries and empty shelves. The Biden administration must use its authority now to stop the strike before the impact becomes irreversible. This is not just about pay or a shipping delays — it’s about our global competitiveness. The ILA’s demands to ban automation in ports will cripple our ability to compete internationally, while ports in Europe and Asia embrace automation and technology to stay ahead.”

Transportation Intermediaries Association President and CEO Anne Reinke

"With the longshoremen’s strike now in effect, the disruption to our supply chain is both immediate and far-reaching, impacting industries from retail to manufacturing at a crucial time — just as the holiday season begins. As industry experts have noted, for every day of the strike, it will take five to seven days to recover.  Essential goods are at risk of delays and price increases, which will severely affect consumers nationwide. With 43% of U.S. imports moving through these ports, the economic consequences will deepen the longer the strike continues.

“We strongly urge both the ILA and United States Maritime Alliance (USMX) to resolve their differences at the bargaining table. Additionally, we call on President Biden to intervene and facilitate a resolution to protect the stability of the U.S. economy and supply chain. The integrity of our supply chain is at stake, and further delays will only worsen the impact on businesses and consumers alike."

U.S. Department of Agriculture

“The Administration is taking action to monitor and address potential impacts on consumers due to labor disputes at East Coast and Gulf Coast ports. Our analysis shows we should not expect significant changes to food prices or availability in the near term. Thanks to the typically smooth movement through the ports of goods, and our strong domestic agricultural production, we do not expect shortages anytime in the near future for most items. Likewise, non-containerized bulk export shipments, including grains, would be unaffected by this strike. For meat and poultry items that are exported through East and Gulf Coast ports, available storage space and re-direction of products to alternative domestic and international markets can alleviate some of the pressure on farmers and food processors. We are keeping an eye on downstream impacts in the west, and we will continue to monitor and work with industry to respond to potential impacts.”

American Chemistry Council President and CEO Chris Jahn

“The ports impacted by the strike account for about 90% of the waterborne chemical shipments that move in and out of the U.S.

"Nearly all manufactured goods are touched by the business of chemistry, which means transporting chemicals is essential to keeping the economy running. The chemicals shipped through these ports are used by every segment of the economy, including chemistry needed to support healthcare, energy generation, agriculture, auto manufacturing, building and construction, household products, aerospace and defense, semiconductor chips and electronics, and more.

“Shutting down the ports along the East and Gulf Coasts will result in a major disruption of chemical imports and exports, which in turn will hurt the broader economy both here and abroad.”

Retail Industry Leaders Association President Brian Dodge

“As logistics leaders, retailers have already activated contingency plans, including rerouting shipments, to ensure consumer goods reach their final destination with limited disruption or extra costs. Shoppers can rest assured holiday merchandise will be on shelves; however, the longer this work stoppage goes on, the harder it will become to shield customers from its effects. 

“Even though leading retailers have prepared for disruptions, the U.S. economy is likely to see immediate impacts from even a short-lived strike. Latest estimates suggest a strike could cost the economy over $4 billion a day. We’ve weathered challenging economic storms over the last several years, most of which were unexpected and out of our control. In this case, the two parties had years of preparation to find an agreement, making the impending strike and its economic harm entirely foreseeable and avoidable.”

Consumer Brands Association VP of Campaigns & Special Projects Tom Madrecki

“This strike will have significant consequences for consumer packaged goods manufacturers and consumers, and the broader U.S. economy. The shutdown of East Coast ports will imperil the import and export of perishable products, which are critical to maintaining the availability and affordability of many everyday products all around the world. President Biden and his administration must act proactively to mitigate this clear supply chain risk and keep the two sides at the negotiating table before it’s too late.”

As a retailer with a more than 120-year history, J.C. Penney has navigated plenty of shifts in the retail space.

Today, the department store chain is focused on protecting its future since emerging from bankruptcy under new ownership in 2020. It's in the midst of a plan to invest more than $1 billion into its business by fiscal year 2025.

One of the central pillars of the retailer’s long-term improvement strategy is implementing more advanced technology, including artificial intelligence and machine learning, into its supply chain operations.

Chief Information Officer Sharmeelee Bala, who joined J.C. Penney in January 2022, has been a key leader behind the company’s technology upgrade strategy, noting that such initiatives are now being looked at as enablers for the company rather than afterthoughts.

“J.C. Penney has been very strategic in ways to invest and how to invest and prioritize the investments in technology, especially,” Bala told Supply Chain Dive in an interview. She added that the company is focused on improving customer and employee experience through its technology investments.

On the customer side, Bala says J.C. Penney has begun implementing newer tools, some homegrown and others from third parties, across pricing and assortment planning, among other functions.

“We’ve also got investments where we decide the node from where we send, whether it was shipped from store or do we need to send it from a distribution center or a fulfillment center, which is closer to our customer, so that they can get it faster,” Bala said.

At the distribution center level, J.C. Penney has turned to new warehouse management systems and automation technology to improve operations. For example, earlier this year, the retailer installed SDI Element Logic’s Joey Pouch sorting system at a facility in Reno, Nevada, in an effort to improve inventory management and purchase delivery times.

Bala said the turn to automation is meant to eliminate an overabundance of time-consuming manual processes and handoffs that were prone to error. She added that automation technology is meant to help augment employees’ work to make their jobs easier.

“Like induction and picking and everything is much more modern and automated. You still have people doing it,” Bala said. “You still have somebody who is having to connect the dots, but it takes that manual handoff out of the picture, and it takes time out of the picture.”

Since implementing automation technology at the Reno distribution center, Bala said speed and productivity have improved at the facility, as has the time it takes to deliver to customers.

Distribution center upgrades are just part of the equation for Bala, who said one of her key challenges is upgrading a massive legacy supply chain made up of multiple systems that perform similar functions.

“I do have infrastructure that is great and stable, but they are pretty old,” Bala said. “So how do I modernize [and] at the same time invest in a way that when I modernize it, I’m also getting efficiency and not just focus on modernizing?”

Although Bala says J.C. Penney is not going after “every shiny object” available, the retailer is prioritizing AI and machine learning-enabled technology. To ensure the success of such systems, Bala has prioritized building up the retailer’s enterprise data platform. Much of that work involves consolidating and cleaning data from across the business to ensure every department is speaking the same language and working together, according to Bala. 

Beyond implementing improved data hygiene practices, Bala and her team are also building a data platform that can adjust as new information comes in, allowing AI models to become more effective and provide the benefits the company needs to compete in an increasingly competitive retail arena.

“When I look at the total cost to serve, because that’s something that as a CIO, I have to keep looking at my ecosystem and say, ‘How do I make it more efficient for me to serve my business partner?’” Bala said. “How do I look at it as ensuring that we are building for the future and not just for today?”

Whether disruptions are happening or not, shippers should have contingency plans in place, experts say, which was a hard lesson learned during the pandemic.

Though as that crisis subsided, 2024 has not been a smooth year for ocean shipping stakeholders. Risks along the Red Sea have created longer transit times, fueling congestion at some ports in Asia. Along with higher ocean rates and a looming East and Gulf Coast labor contract expiration, shippers are also facing a volatile ocean market.

Transport and logistics experts shared their take on the current risks shippers and carriers are facing along with strategies to mitigate supply chain disruptions during Industry Dive’s live event on July 24, “Supply Chain Outlook: Trends and Risks To Watch in 2024.”

Here’s what the experts suggest logistics industry stakeholders should do to best navigate the rest of the year.

Diversification: Back to basics

Supply chain disruptions loom at U.S. ports. The International Longshoremen’s Association’s master contract with the United States Maritime Alliance is set to expire on Sept. 30. While negotiations continue, experts suggest preparation is the best strategy to mitigate problems.

“As far as preparing, we have seen a good bit of the front loading of ocean freight cargo. The early peak season and some of that could be attributed to a potential strike to make sure that the retailers have their inventory and such,” Cathy Morrow Roberson, founder and president of Logistics Trends and Insights, said during the live panel.

Diversification is one tool shippers can tap to reduce potential disruptions — a lesson many retailers learned during the pandemic, Roberson said. During contract negotiations for West Coast dockworkers, shippers "learned to diversify their ports," she added.

Hedge cargo, don’t push it all

When service issues arise at the ports, trucking typically is the next segment to feel its impact, according to Paul Brashier, VP of global supply chain at ITS Logistics. He has been advising clients to stay away from areas that are problematic.

“Hedge, don't don't push everything to the U.S. West Coast,” he added. 

One option is for certain SKUs to be moved through the Panama Canal to the East Coast. If possible, a shipper should avoid moving all cargo to the West Coast because “we are concerned about significant congestion,” he added, since there has been an increase in volumes shifting to those ports.

Another lesson learned from post-pandemic congestion is ensuring drivers can enter all the ports in certain regions, Brashier said. For example, making sure drivers coming from Southeast ports such as Jacksonville, Charleston, and Savannah can enter ports in the Northeast like Norfolk, New York, and Baltimore, he said.

Whether or not an East and Gulf Coast labor strike happens, the decisions around a potential strike can cause some ripple effects along the supply chain. Simply navigating the uncertainty is already changing patterns and bookings, Brashier said.

After navigating the West Coast port labor negotiations in 2023, Brashier recommends that shippers should be prepared for any service disruption situations. That can start with having the right capacity and adequate network that can operate outside and avoid problem areas while still fulfilling shippers’ needs. Second is visibility, Brashier added, “making sure you know, where your containers are, when they're going to discharge, where they're going to discharge, what's happening to them outside the terminal.”

Planning starts today

Another concern for shippers is possible peak season delays and what they should do to reduce risks. According to Robert Reiter, CEO of DHL Global Forwarding USA, peak season came early and will probably last for a couple of months. 

In response to preparing for such delays, “contingency plans starts today,” Reiter said.

Reiter said delays emerged in the Transpacific Eastbound shipping lanes for the last six to eight weeks with some significant space shortage driven by uncertainty in the ocean market.

“If you look into Southeast Asia, we see port congestion all over the place already going on,” he said. “So this is not a topic that we expect. This is a topic that we are currently dealing with that triggers delays.”

Shippers should also foster stronger relationships with carrier partners, Reiter said, as well as leverage other freights modes such as intermodal and airfreight.

“It’s absolutely critical to stay agile [and] leverage the technology,” he said.

The de minimis exemption: An amendment to U.S. trade law written nearly 100 years ago that has become a key fixture in cross-border e-commerce supply chains.

But how much longer it will exist in its current state is anyone's guess.

For now, the provision allows companies to avoid duties and taxes for imports below $800. Utilizing the exemption aids fast-rising e-commerce marketplaces like Temu and Shein's efforts to sell products at ultra-low prices. It can also help companies address consumer trends quickly and ship a wide range of SKUs while mitigating inventory glut, experts say.

That's why companies in a wide range of sectors — from apparel and consumer goods to health and beauty — have embraced de minimis, said Brian Bourke, global chief commercial officer at Seko Logistics. Consumers, meanwhile, reap its benefits because they can select from a variety of options at nominal cost.

However, changes may come for de minimis regulations in the near future, as U.S. lawmakers and officials look to curb China's influence and combat contraband entering the country via low-cost packages. While this could complicate cross-border e-commerce operations, consumer behavior will ultimately dictate how much supply chains adjust, industry observers say.

"These regulations will continue to change," Bourke said. "What won't change is the demand for international postal shipping."

De minimis evolves with e-commerce's rise

Section 321 of the Tariff Act of 1930, known as the de minimis exemption, permits merchandise shipments with a retail value below a certain dollar amount to be imported duty and tax free. Originally introduced as an amendment to the act in 1938, the exemption allowed a person to bring up to $5 worth of goods into the U.S. for personal use without having to pay duties.

"The provision over the years was really intended more for the individuals who go on a cruise or fly to Europe, and they come back with their souvenirs or that beautiful new leather purse or belt from Italy," said Lenny Feldman, general counsel and customs counsel to the National Customs Brokers and Freight Forwarders Association of America.

Lawmakers raised the $5 threshold incrementally over the years until it jumped from $200 to $800 in 2016 under the Trade Facilitation and Trade Enforcement Act. The new law expanded the scope of what could be shipped duty-free as Americans became more accustomed to ordering goods from around the world. The COVID-19 pandemic further entrenched those habits.

Today, companies typically leverage the de minimis exemption for direct-to-consumer parcels transported via air cargo to limit their costs while meeting sustained e-commerce demand. This can potentially lead to millions of dollars in savings for larger retailers and marketplaces, Feldman said.

Temu and Shein have emerged as go-to examples of companies with de minimis-reliant supply chains amid the e-commerce outlets’ rising popularity among American consumers. The companies are likely responsible for more than 30% of all U.S.-bound daily volume that falls under the provision, according to a 2023 report from the House of Representatives' Select Committee on the Chinese Communist Party.

Even Amazon has taken notice of the direct shipping model, with The Information reporting in June that the e-commerce giant plans to launch a discount section on its website that will ship from warehouses in China directly to customers.

Plenty of other brands are also using the de minimis exemption to their benefit, said Izzy Rosenzweig, founder of e-commerce fulfillment company Portless, which helps shippers utilize a Shein or Temu-like model by providing direct cargo flights from China to last-mile fulfillment centers in the U.S.

Rosenzweig says the model's advantage goes beyond avoiding added costs — businesses can respond quickly to consumer trends and keep inventory lean by shipping products straight from the factory to end customers. It's one leveraged by Shein, which minimizes the supply-demand gap by manufacturing new products in small initial batches of 100 to 200 items, according to its website. It then produces more of the products that receive high customer interest.

How much supply chains have embraced the low-cost and streamlined model of de minimis shipping is evident in CBP data. The number of such shipments the agency processed in 2023 reached 1 billion, more than six times the volume it handled in 2015, it said in March.

"Fundamentally, this model is run by efficiency of inventory management," Rosenzweig said, adding that "the reason why Shein has grown to a $30 billion business is not because there's any magic in their clothing. It's because they run the most efficient supply chain in the world."

Political pressure rises around de minimis enforcement

Several groups have emerged pushing back against the growing wave of shipments utilizing the de minimis exemption.

U.S. CBP officials are cracking down on de minimis shipments filed with vague and inaccurate data as part of their efforts to prevent illegal substances, counterfeit goods and products made with forced labor from entering the country. This enforcement push led the agency to suspend multiple customs brokers from a key import program for de minimis shipments in May.

While the CBP's crackdown may slow down cross-border flows for impacted brokers, it's needed for an agency that doesn't have an extensive history monitoring lightweight e-commerce packages, said Cindy Allen, CEO and managing director of Trade Force Multiplier, an international trade consultancy. Thorough inspections on de minimis packages today could help the agency develop more precise targeting against illegal shipments over the long term.

"This is kind of a necessary step, as painful as it may be, to allow CBP the intelligence and the understanding of the environment that allows them to be more effective in their job," said Allen, a former VP of regulatory affairs and compliance at FedEx Logistics.

The amount of narcotics, controlled substances and other contraband that officials have discovered in de minimis packages at airports and mailing facilities "is stunning," according to Homeland Security Secretary Alejandro Mayorkas. The secretary said during an event in July that his department is "hoping to receive a legislative fix" that will give it more authority to address de minimis-related exploitation.

The secretary may get his wish soon. Lawmakers fretting over China's influence and its impact on the American economy have introduced bills in Congress that seek to scale back the current flow of de minimis shipments. 

The Import Security and Fairness Act, introduced in July 2023, proposes to end de minimis treatment for imports from China and Russia while strengthening customs screening, and the End China’s De Minimis Abuse Act would prevent more than 60% of China-based goods from utilizing the exemption. A bipartisan group of senators unveiled another proposal to crack down on de minimis shipping in August.

None of the bills have made much progress yet, but House of Representatives Speaker Mike Johnson said in July that the House plans to rein in the de minimis privilege of products subject to Section 301 tariffs. 

A coalition of 25 domestic manufacturers, nonprofit groups, labor unions and law enforcement organizations are supporting Congressional reform of de minimis through the Coalition to Close the De Minimis Loophole, which launched in March. Members say the exemption has hurt American businesses' competitiveness while letting illicit drugs like fentanyl enter the country undetected.

But not everyone in the U.S. is on board with the potential changes. The National Association of Manufacturers, U.S. Chamber of Commerce and four other groups have come out against its potential elimination. In a letter to members of President Joe Biden's administration, the organizations warned that removing the provision could lead to additional processing and brokerage fees that could more than double the price of a de minimis package.

"Eliminating de minimis is the equivalent of a tax hike that would disproportionately impact small business owners and low-income consumers who purchase affordable goods online," the groups said.

Changes could spur supply chain shifts and longer shipping times

Experts told Supply Chain Dive they believe some sort of change to the law will happen soon. But the exact form that change will ultimately take — and when it will take effect — remains uncertain.

A straightforward path for Congress to take would be to lower the U.S.'s $800 threshold, which is a relatively high amount compared to other countries, according to Global Express Association data. Canada, for example, has a customs duty and tax remission value of up to $20 Canadian dollars (approximately $15 USD), save for certain U.S. and Mexico shipments.

Industry observers interviewed by Supply Chain Dive think the U.S. could lower the threshold significantly before most businesses would notice the impact, since the average de minimis shipment value is $54. If the next threshold is lower than that, or doesn't exist at all, the added costs likely won't be enough to significantly dampen import activity, they added.

However, consumers may see higher prices as a result of tax and duty-related expenses being passed onto them.

De minimis-reliant shippers may respond by ramping up production in countries not targeted by bills like the End China’s De Minimis Abuse Act. After all, shipping from a manufacturing facility directly to an end consumer doesn't have to involve China — it can apply to countries like India, Mexico and Canada as well.

Products with parts still made in China could be assembled elsewhere before entering the U.S. and avoid possible de minimis scrutiny, Audrey Ross, import and export compliance manager for Orchard Custom Beauty, said during a Home Delivery World 2024 panel in June.

Another legislative possibility is strengthening U.S. CBP's ability to screen shipments. The Biden administration is proposing legislation that would grant the agency the authority to demand additional documentation on de minimis packages — and add a user fee for those shipments — to better detect and identify packages from drug traffickers.

If a more stringent customs process holds up shipments for prolonged periods, that could compromise the value of the direct shipping model, according to John Lash, group VP of product strategy at supply chain software provider e2open. While Temu and Shein aren't known for fast delivery times, testing consumers' patience further is risky as other retailers continue to improve domestic shipping speeds.

"The model breaks, because you as a consumer would say, 'Maybe I can save 20% from buying it in China, but it's not worth waiting for it,'" Lash said.

Whether or not the Biden administration's proposal becomes law, Feldman of the National Customs Brokers and Forwarders Association of America said all parties in the supply chain — not just the customs brokers filing the information — should work to supply accurate and thorough shipment data. That will help them stay within the good graces of customs officials while keeping de minimis shipments moving.

"There needs to be accountability throughout the supply chain, if the supply chain is going to become what I like to call a 'comply chain,'" Feldman said. "You know the old adage: The supply chain is only as strong as its weakest link."

Edwin Lopez, Phil Neuffer and Kelly Stroh contributed to this story.

Dive Brief:

• Dollar General’s strategy to cut back on items it sells and quickly replenish high-demand products in its stores appears to be resonating with customers, executives said during a May earnings call.
• The discount retailer has been focusing on cutting costs, necessitating the retooling of its supply chain though new distribution centers and a heavier reliance on its own trucking fleet.
• As store sales improve, optimizing inventory will remain a high priority for the company, CFO Kelly Dilts said on the call, adding that scaling back in-store inventory “simplifies things both upstream in the supply chain as well as in our stores.”

Dive Insight:

Dollar General’s focus on selling more consumables and marking down more inventory contributed to Q1 net sales increasing 6.1% to $9.9 billion compared to $9.3 billion in 2023, according to a Q1 earnings press release. The retailer also credited elevated in-store traffic for a 2.4% year-over-year increase in same store sales.

The change in strategy aligns with the turnaround plan set by CEO Todd Vasos, who returned to the company in October 2023 following the departure of Jeffery Owen.

What the company calls its back-to-basics strategy also involves reducing the number of products sold in stores, which also is part of the retailer’s effort to sell excess inventory, Vasos said on the call.

Vasos said the retailer is committed to a net reduction of up to 1,000 SKUs within its supply chain by year’s end, noting that “we are well on our way to meeting that goal.”

Fewer products moving through its warehouses should ease distribution constraints, according to Vasos, who noted the retailer is also focused on restocking merchandise sought by its core customers, he said.

“Our distribution and transportation teams have taken aggressive action to improve their service to our stores, and these efforts have led to significantly higher OTIF levels compared to the same time last year,” he said.

Vasos said Dollar General expects to experience improved distribution efficiencies after it exits 12 temporary warehouses and moves into new permanent facilities in Arkansas and Colorado later this year.

The Home Depot uses the Freight Logistics Optimization Works platform to anticipate and mitigate potential capacity crunches, which affects import flow.

When Home Depot joined FLOW in 2022, the platform was created as a data-sharing solution to ease cargo flow during the COVID-19 pandemic.

Sarah Galica, VP of transportation, spoke with Supply Chain Dive about how the federal platform helped it build better relationships with other logistics providers, and how the company uses data-sharing.

Check out the Q&A below for more insights on how Home Depot plans to leverage FLOW and navigate future disruptions.

SUPPLY CHAIN DIVE: How has FLOW helped the company's supply chain operations and logistics?

SARAH GALICA: When used as an import capacity modeling tool, it's helping us to provide better insights into potential capacity crunches that we may see. We're still working through how it's going to add a lot of value into our day-to-day decision making. But the team has been working on that for quite some time to validate, get the right information, and how do we leverage some of those signals.

I think the biggest thing for us is the kind of the relationships that we've been able to build through the program. With other [Beneficial Cargo Owners], ports, and other logistics providers, we get to talk about best practices and talk about visibility, and then just really get a seat at the table.

Do you connect with ocean carriers or what type of people are you working with?

The FLOW committee, they share the information with us. We bring it into our own internal modeling and what we do is look to forecast how much we're going to have importing from any given port to any given port in the U.S.

Right now, it's not a problem because capacity is plentiful, but during the pandemic the biggest issue was we saw capacity really tighten and we could only see our own data. And so if we'd had this information during the COVID crisis, we could have been able to potentially move to other ports or source from different areas if we had that information at the time.

A recent impact to ocean shipping was the bridge collapse near Baltimore. Was Home Depot affected? If so, did the FLOW program help mitigate possible delays?

Home Depot has two distribution centers very close to the bridge. But from a domestic transportation [view], there's an alternative bridge so it really didn't impact our ability to bring associates to the facility or deliver to our customers. We use a very small amount — less than 1% of our import volume goes into Baltimore. Compared to some other industries we weren't nearly as impacted.

We were able to get on a call with the [Department of Transportation] right away and understand what they're doing to help alleviate the situation. They coordinated with all the other ports in the area to make sure they had enough capacity so you could see the work that they were doing, but it just didn't have a big impact to Home Depot.

Why did Home Depot feel the need to become a FLOW member?

At Home Depot, we feel strongly about making sure we're working with all of our partners.

As a big importer we also felt that it was our responsibility to make sure we're sharing our data. We felt confident that they were sanitizing the information so there’s no concerns about our exact information getting out to other people from a competitive standpoint. This is us doing our part and then seeing what type of information or insights we can gather from the data that they're outputting to us.

What kind of data is Home Depot sharing?

It's essentially a high level view of our forecasted receipts. And we've provided — I don't remember exactly what level of detail — a forecast of how much we're going to be bringing into any individual port from overseas. It's based on our own internal forecasts and they tie that with all the other large BCOs and ocean carriers on what they are sharing as well from high level bookings to get a better idea of where they're going to see the volume on the U.S. side.

Can you give an example of an issue Home Depot faced and was able to solve using the FLOW program?

It was helpful to be connected with them during some of these crises with the Red Sea, the Panama Canal, but for the most part, we work directly with our ocean carriers to adjust the work volume to other places. So we didn't necessarily leverage FLOW for that.

To solve the issue specifically, the Red Sea and Panama Canal, we talked directly to the Panama Canal and we talked with our ocean carriers. We coordinated with them to divert the volume that we needed to divert.

Anything else you’d like to add?

I have a senior director on my team who is actually on the executive board for the FLOW program. His name is Dan Gross and he is one of 19 other BCOs and carriers. He's excited about being part of that, such as helping shape the future of the different use cases for the data and how we're going to make sure that the private sector is getting value from the program. We're excited to be a part of that and he's going to be attending an annual FLOW meeting in a couple of weeks in DC.

Macy’s three-point transformation plan to combat sliding market share — dubbed the “Bold New Chapter” — will rely heavily on its supply chain.

The retailer plans to close distribution centers, increase automation, and implement other tactics that help the corporation improve inventory, productivity, and, ultimately, sales, the corporation's CFO and COO, Adrian Mitchell, said in a Q4 earnings call.

Altogether, supply chain efforts should result in $100 million in cost savings in the current fiscal year, eventually rising to annual run-rate savings of some $235 million by 2026, Mitchell added in the late February call.

"Across the organization, Macy’s, Inc. plans to align operations to anticipated future omni-demand and deliver a more efficient operating model that will allow the organization to better serve customers," the company said in a press release about the new strategic priorities.

The initiatives come after Macy's reported a $71 million net loss in the most recent quarter. In addition to supply chain efforts, its three-point plan also involves closing Macy’s stores and investing in the company’s luxury offerings.

They also follow the departure of Macy’s first-ever chief supply chain officer, Dennis Mullahy. The leadership change was a critical moment for the company’s operations: After Mullahy left last July, Macy’s decided not to maintain a CSCO title. Instead, it opted to have its supply chain executives report to Mitchell — who is leading the end-to-end operations initiatives.

Under Mullahy, Macy’s built up infrastructure to bolster omnichannel, including in-store fulfillment. Now, the retailer is pursuing a “right-sized distribution center network,” as Mitchell said on the earnings call.

In doing so, CEO and Chair-elect Tony Spring told investors the retailer plans to monetize $600 million to $750 million of assets, primarily related to the closures of stores and certain distribution centers.

At the same time, the company is already implementing more automation across the Macy’s Inc. portfolio. It is consolidating its vendor base to decrease dependence on expensive digital tools, moving most of its applications from on-premise to the cloud, and building artificial intelligence and other data capabilities for inventory allocation, forecasting, pricing and other functions.

“The inventory planning and allocation changes underway should help improve how we flow products from vendors to customers. They should provide quick replenishment in stores and fulfillment centers, reduce split shipments and lead to higher in stocks, particularly for best-selling items,” Mitchell said.

Macy’s isn’t the only retailer streamlining its supply chain operations in the name of efficiency. Walmart recently offloaded its intermodal assets to J.B. Hunt Transport Services, likely to reduce costs associated with owning a private fleet. Meanwhile, Wayfair is planning to roll out consolidated delivery options, which will help cut shipping costs.

“A modern operation is our objective throughout the company, aligning to the anticipated future omni demand provides synergistic cost savings and allows us to improve our ways of working,” Spring said.

Dive Brief:

• Target has at least 10 additional supply chain facilities in the pipeline that will be operating within the next decade, CEO Brian Cornell said on the retailer’s fourth-quarter earnings call in March.
• The growth builds on investments Target has made into its supply chain in recent years. “In less than 10 years, we've created, acquired and constantly advanced sortation centers, upstream distribution centers, food distribution centers, and a steady stream of replenishment, technology, and logistics innovation,” Cornell said.
• Target’s supply chain investments have helped increased efficiency and profitability, as have its inventory management efforts. “Without the need to manage overfilled back rooms, store teams were able to flow product onto their sales floor more easily and increase their focus on guest facing work,” Michael Fiddelke, Target’s CFO and COO, said.

Dive Insight:

For Target, its backend operations and appeal to customers are two sides of the same coin. Executives framed investments into supply chain as a pathway to increasing the company’s importance to its customer base.

“Without huge investments in stores, supply chain and tech, there is no Drive Up or Order Pickup, which were monumental growth drivers during COVID and today,” Cornell said. “And without stores, supply chain and tech, and providers like UPS, FedEx, and Shipt, there is no home delivery, which is ready for a step-change in guest acquisition, satisfaction and loyalty.”

As the retailer builds out its supply chain infrastructure, it’s also investing to get more precision in inventory planning. “We're partnering with teams across the company to enhance our inventory positioning and demand forecasting, leveraging AI and machine learning to enhance our speed, consistency and efficiency,” Fiddelke said.

Already Target’s efforts to pare down its inventory in the face lackluster demand have been critical to selling profitably in a tough market. For Q4, the company’s operating income ballooned by 61% year over year to just under $1.9 billion while its inventory was down 11.9% YoY in the period.

For the full year, Target’s various efficiency efforts saved the company more than $500 million in 2023, Fiddelke said. The company credited its inventory management with many of the the improvements.

“It was a dedication of our team that allowed us to maintain leaner, healthier inventory levels last year, which positions us well as we enter a new year,” Chief Growth Officer Christina Hennington said on the call. “This led to stronger profit outcomes, improved in-stocks, and perhaps most importantly, increased flexibility, allowing us to react quickly to changing trends.”

Explaining further, Hennington pointed to categories like apparel, where Target’s response to tepid demand has been to hold off on planned inventory purchases and keeping its open-to-buy budgets free, which allows it to chase after trending merchandise. That, in turn, has led to the best in-stock levels in four years even with inventory levels down, Hennington noted.

Dive Brief:

• Apparel companies Gap Inc., H&M Group, Mango and Bestseller joined an initiative to decarbonize the fashion sector and slash emissions within its supply chain, the group announced in June.
• The Future Supplier Initiative offers brands financing models and technical support to help their suppliers transition to low carbon technologies and implement renewable energy solutions at the factory level. The program seeks to assist both brands and suppliers in meeting their climate targets and limiting global temperature rise to the 1.5°C climate threshold set by the Paris Agreement.
• The initiative — backed by The Fashion Pact, Apparel Impact Institute, consultancy firm Guidehouse and DBS Bank — will launch its pilot program in Bangladesh with support from the new quartet of signees. The companies will help provide expertise in building technical proposals, lowering lending risk to suppliers and implementing sustainability measures at “more attractive rates,” per the release.

Dive Insight:

As most of the fashion industry’s emissions stem from its supply chain, the Future Supplier Initiative aims to expedite companies’ pathway to net-zero status by highlighting the “financial risks and responsibilities” associated with shifting to clean energy sources. The initiative aims to provide this guidance to targeted garment and textile businesses that are direct suppliers, responsible for assembling and manufacturing the final product — known as Tier 1 — and factories that are subcontractors, supplying fabrics and materials to those that put the final product together — known as Tier 2.

The fashion industry and its supply chain are the world’s third largest polluter, according to a 2021 World Economic Forum report. A separate study from the European Parliament found the sector emitted almost 10% of the world’s greenhouse gas emissions annually, more than those generated by international flights and maritime shipping combined.

“The cost of inaction on climate change is unaffordable,” Eva von Alvensleben, The Fashion Impact’s executive director, said in a release. “If the fashion sector is to meet its goals and transform its supply chain, we urgently need to address the gap between ambition and action.”

Von Alvensleben said no single company alone can bridge this gap, but several of them can come together to “build an ecosystem of solutions” by “sharing the costs, risks and responsibilities of the transition to renewable energy.”

The Future Supplier Initiative said it aims to cut the price tag that often comes with the adoption of renewable energy solutions for suppliers by collaborating with fashion companies to reduce the cost of capital and loans. In addition to financial assistance, the initiative will also help suppliers identify and implement sustainable tech and solutions that reduce the business’s reliance on carbon.

The initiative will monitor the emissions reductions brought by such measures to demonstrate the overall impact of the projects it supports and helps implement, both on the factory level and the supplier level.

While the first iteration of the program will launch in Bangladesh, the initiative is “actively recruiting” more brands and intends to expand its project to “other key manufacturing regions,” such as China, Vietnam, India, Italy and Turkey, according to the release.

Dive Brief:

• Levi Strauss & Co. is moving away from a primarily owned-and-operated distribution logistics network in the U.S. and Europe to one that includes third-party logistics providers, according to a June 27 earnings call.
• The shift to a hybrid distribution and logistics model aims to leverage third-party capital to invest in its direct-to-consumer channels while reducing fulfillment costs per unit, Financial and Growth Officer Harmit Singh said.
• “As we continue our pivot to a DTC first company, our distribution networks need investment including upgrading existing capacity with omni-channel capabilities,” Singh told analysts.

Dive Insight:

Levi’s shift follows several other companies who have re-evaluated their fulfillment strategies in a bid to gain greater control over their operations or trim expenses. While a perfect approach to fulfillment doesn’t exist, operational needs, demand swings and shipping disruptions are just a few of the factors businesses are taking into consideration.

For instance, DavidsTea split from its existing fulfillment service provider in 2023 to insource its operations. While the company saw lower revenues at first, DavidsTea saw gross profit increase due to the lower cost per unit driven by internalizing its fulfillment operations.

In Levi’s case, the hybrid fulfillment model aims to give the retailer room to focus on its larger DTC strategy while slashing costs. The company’s distribution model has been top of mind as Levi’s looks to optimize supply chain operations.

In 2023 the apparel company noted that operating its distribution centers had been rough due to elevated inventory levels at the time. Since then, Levi’s has made significant progress on working through its stock.

In 2023, Levi’s also opened a more than 575,000-square-foot e-commerce fulfillment center in Kentucky to serve East Coast e-commerce orders. The opening was part of a larger effort to bring more of the retailer’s U.S. e-commerce business in-house while driving growth in its DTC business.

As Levi’s continues to optimize its fulfillment operations, the new hybrid model will continue to benefit healthier inventory levels and increase profitability.

“Importantly, this channel is significantly more profitable than last year, amplified by our healthier inventory levels and the improvement in our supply chain operations,” President and CEO Michelle Gass told analysts.