The Supply Chain Dive Outlook on 2022

Higher annual rate increases and expanded surcharges will make 2022 an even more expensive year for unprepared parcel shippers.

A 5.9% general rate hike is common across U.S. parcel carriers this year, higher than the 4.9% increase many put into effect in 2021. When factoring in FedEx and UPS' adjustments to their surcharges, such as for fuel or oversized package handling, the overall increase in what shippers are paying "is actually in excess of 9%," said Tom Nightingale, CEO at AFS Logistics.

"Even just the spread between the headline rate and the actual rate is exceptionally high this year," he added.

Carriers say they are instituting these price hikes to keep deliveries on time in a period of growing demand. UPS said in a statement its rate increases "support ongoing enhancements to our network while maintaining the high service levels our customers expect." For FedEx, the increases reflect higher costs during a "challenging operating environment," it announced in September.

With volumes elevated and capacity tight, FedEx and UPS have prioritized more profitable deliveries, such as packages from small- and medium-sized businesses, while implementing surcharges and rate hikes to help them invest in bolstering their networks.

This approach has worked for the carriers financially. UPS grew revenue per piece by 14% in Q3, as the company increased its share of small- and medium-sized business volume and "utilized surcharges to match demand with available capacity," according to an investor presentation. In FedEx's most recently reported quarter, revenue per package at both its Express and Ground units grew YoY, and Chief Marketing Officer Brie Carere said on an earnings call that small business was its fastest-growing segment.

Shippers, meanwhile, have seen higher costs for ground delivery services, which are responsible for the bulk of e-commerce volumes that have surged amid the pandemic.

Ground parcel rates have already been above their 2018 levels since 2019, but they're expected to reach new heights in Q1 of this year, according to the January 2022 Cowen/AFS Freight Index. Rates jumped in the prior quarter "due to the increase in mix of residential shipments, peak surcharges, increased fuel surcharges and tighter pricing controls by the carriers," per an AFS presentation on the index.

Nightingale said excess parcel volume often spills over into LTL transport, with the same pattern occurring for LTL into truckload, and truckload into intermodal. What makes the current environment especially difficult for shippers is that all other transport modes are operating at or above capacity, clogging this normal flow.

"This is probably one of the few times in my 32 years in this business where we have seen all modes at or above their peak capacity levels," Nightingale said.

Delivery surcharges pack more of a punch in 2022

Announced rate increases don't fully reflect how much the changes to delivery surcharges will cost shippers in 2022, said Shipware founder and co-CEO Trevor Outman. Surcharges have grown to be a significant portion of some companies' transportation spend, sometimes climbing to as much as 40% versus 10% to 15% in years past, he added.

"The sophisticated shippers will negotiate (with carriers) a general rate increase cap, or the general rate increase won't exceed a certain amount, but that doesn't apply to surcharges," Outman said. "There are probably 100 different surcharges of different flavors, descriptions and amounts. So to just focus on the general rate increase and service discounts is missing the impact entirely."

Companies shipping bulkier, oddly-sized items through FedEx and UPS will be hit particularly hard with surcharges. Additional handling and oversized package surcharges have increased for several shipping zones at both carriers.

Certain residential deliveries will also see price increases. FedEx introduced a $1 per-package delivery and returns surcharge assessed on packages using its Ground Economy services. And UPS has begun applying a remote area surcharge for certain ZIP codes in the 48 contiguous U.S. states. According to a Shipware analysis of the surcharge, roughly 4.7 million more addresses will become more expensive to deliver to as a result.

Reducing spend in a carrier-friendly market

Despite the pricing power parcel carriers currently hold in the market, there are avenues for shippers to pare down their transportation spend in the year ahead. Smaller shippers are in a good position to renegotiate contracts with FedEx and UPS due to the carriers' increased interest in retaining and winning that business, Outman said.

Additionally, FedEx and UPS aren't the only game in town, and more shippers are diversifying their mix of carriers to include regional players.

"Regionals are finally getting their due because of what's happened in the marketplace, with UPS and FedEx having peak restrictions, because of the massive amounts of volume that have come through, especially on e-commerce," said Melissa Priest, founder and CEO of Alexandretta Transportation Consulting. "Shippers haven't had much choice but to really examine and make use of the regionals when they can."

Shippers can also look inward to reduce their transportation spend. In a news release on European parcel rate hikes, consulting firm BCI Global recommended companies move distribution networks closer to local markets and explore whether slower, less-expensive shipping options could replace current services. Priest noted that shippers with multiple distribution centers should be aware of how much costs can increase depending on shipping distance.

"If you're only keeping umbrellas in one place, because maybe they're in a rainy location, but you do send a few of them someplace not so rainy during the year, are those few that you send further away chipping away at your profits?" Priest said.

Stockouts and raw material shortages came to define 2021, and empty shelves pushed the term "supply chains" into the national spotlight.

Skyrocketing demand, the pandemic and other factors driving current supply issues aren't expected to go away in 2022, and shortages of certain materials and products will likely continue. But as companies get better at forecasting and responding to potential disruptions, their impact could be less pronounced.

"This might be the year where we reach some sort of predictability," said Simon Geale, executive vice president of procurement consultancy Proxima. "But it's not going to be the year where we completely alleviate ourselves from the shortages."

Here's a look at some of the biggest supply constraints of 2021 that will likely continue to create headwinds for companies this year.

Semiconductors

Sky-high demand for computer chips is expected to keep supply tight through the rest of the year.

Chips are used in everything from automobiles to household appliances, and widespread shifts among businesses to 5G are placing additional strain on producers. Semiconductor shortages the past two years are expected to have resulted in revenue misses of more than $500 billion worldwide for suppliers and customers, according to a Deloitte report.

Semiconductor producers have taken steps to ramp up production, and capital expenditure projects announced before the pandemic are predicted to add even more capacity this year, according to the report.

Still, that won't be enough to meet demand this year. Semiconductor supplier Broadcom, for example, is "pretty much booked all the way through '22 and even beyond '22 into '23," CEO Hock Tan said in a December earnings call.

Aluminum

Tight supply of aluminum has created problems for the construction industry and for beverage makers who have had trouble getting their hands on enough aluminum cans. Monster Beverage "was not able to fully satisfy increased demand" in the third quarter due to can shortages and other supply chain challenges, co-CEO Rodney Sacks told analysts in November.

China curtailed production of aluminum and other energy-intensive metals last year as part of its plan to reduce carbon emissions, and a report from ING Group found primary production in the country to be 1.2 million tons below the bank's expectations.

Surging natural gas prices in Europe have also pushed some producers to curtail production, exacerbating the global supply situation. Europe lost more than 650,000 tons of annual production capacity since the rise in energy prices began in October, European Aluminium wrote in a letter to the EU Jan. 14.

Aluminum can producers have invested in new projects to ramp up capacity in the U.S. — in September, Ball Corporation announced it would build a $290 million packaging plant in Nevada. But with the plant not expected to come online until late 2022, the company predicts demand will continue to outstrip supply in the short-term.

"Early insights into 2022 is we're significantly oversold again," President Dan Fisher said in a November earnings call.

Food products

Grocery stores may not rid themselves of empty shelves just yet, as labor constraints and challenges with the 2022 crop growing season could keep prices high and supply spotty through the rest of this year.

The fast-spreading omicron variant has upended operations at food manufacturing plants, and a rise in the number of sick workers has raised costs for businesses and limited output. Conagra, owner of Marie Callender's and Reddi-wip, saw a rise in "omicron absenteeism" and expects disruptions last into Q3, CEO Sean Connolly told analysts earlier this month.

Shortages of fertilizer and pesticides have also left producers warning that this year's crop yields could be smaller. Soaring natural gas prices in Europe and curbs on exports from Russia and China is expected to keep fertilizer demand high beyond 2023, an executive with manufacturer CF Industries told analysts in November.

"It's going to continue to get worse, it appears," Southern Valley Fruit and Vegetable Executive Officer Jon Schwalls said during testimony in a Nov. 3 congressional hearing on food supply chain issues. "The less protection products we have, the less yields we're gonna have."

Plastics

A Texas ice storm and two hurricanes along the U.S. Gulf Coast walloped the chemicals supply chain last year, causing factory outages and disruptions to manufacturing that dragged on for months.

Plastic resins, the raw material used to make everything from packaging to paint, were reported to be in short supply for the 10th straight month in December, according to the Institute for Supply Management. Prices last year skyrocketed as much as 50%, according to AlixPartners.

Manufacturers have moved to stockpile more product, which is expected to ease prices and supply constraints in 2022. But increasing demand and a reinstated tax on imported resins will likely keep the market volatile.

Building materials

High materials cost and a lack of supply are lengthening lead times of construction projects and pushing contractors to use alternate materials.

Overall construction input prices are up 22.3% from a year ago, with nonresidential construction prices up 23.2%, according to the Association of Builders and Contractors. Home builder sentiment dropped for the first time in four months on rising inflation and material shortages, according to the National Association of Home Builders.

"The price and availability of building materials, and the supply chain in general, remains the most pressing, immediate challenge for builders as they seek to add housing supply," said NAHB Chairman Chuck Fowke in a release.

Builders faced long lead times last year of everything from wallboard to garage doors, and shortages come as businesses plan new distribution centers and other massive capital expenditure projects to add resilience to their supply chains.

Labor constraints, high demand for construction and long lead times could prompt some companies to reassess plans, said Proxima's Geale.

"These sort of modernization programs that businesses are hanging their hats, we're gonna we're gonna really see who manages to push it through," said Geale.

Smart technology has been around for well over a decade, but a look at recent survey data suggests the pace of change is picking up — particularly in warehouses and manufacturing facilities.

It's a change that was happening pre-pandemic. But continued worker shortages and supply chain disruptions have accelerated technology adoption over the past two years, according to John Paxton, CEO of MHI.

For the past nine years, MHI has been surveying materials handling professionals and asking them how likely their facility is to implement a series of technologies. Each year, there are new adoption trends, shifts in use cases, and evidence some technologies may be more hype than ripe for use.

"One thing we have learned over the past nine years we have been producing the MHI Annual Industry Report is that supply chains are becoming more and more a technology-driven industry," Paxton said in an email.

Some technologies are on the fast-track with supply chains: cloud computing, AI and IoT come to mind. Others, like 3D printing or blockchain, are struggling to show a business case. Overall, Paxton said two factors — disruption and consumer demand — are driving the adoption of technology.

"What we expect to see over the next few years is really a revolution in the adoption of these technologies," said Paxton.

In an effort to keep supply chain managers up to date on the latest technology trends, Supply Chain Dive reached out to MHI for an in-depth look at adoption trends.

This story will be updated each year as new data is released by MHI. (The next report is expected in March 2022.) Take a look at the table above, and the charts and stories linked below, to dive deeper on the 2021 technology trends.

Editor's note: This article is the third in a series looking at five of the country's hottest construction verticals. Click here for the entire series.

Ports from coast to coast are eyeing improvement projects to help alleviate supply chain issues that have plagued businesses since the start of the COVID-19 pandemic.

The focus on port projects in the recently enacted Infrastructure Investment and Jobs Act is part of an overall push from the Biden administration to help alleviate the clogged supply chain in the U.S.

"That bill is going to help improve ports that get our supply chains moving and speeding up deliveries and addressing shortages," John Fumero, a shareholder at Nason Yeager, a Florida-based law firm that represents the Port of Palm Beach, Florida, told Construction Dive. "[It's] going to be providing significant funding for ports to undertake these projects to expand capacity."

But there's even more money for the sector beyond the $17 billion round of federal funding earmarked for seaports in the Infrastructure Investment and Jobs Act. Transportation Secretary Pete Buttigieg announced in December $241 million in grants via the United States Maritime Administration Port Infrastructure Development Program (PIDP). That money will go toward 25 projects in 19 states to bolster U.S. ports.

In addition to this funding, the PIDP will then nearly double that amount to $450 million in grants annually for the next five years via funds from the IIJA, – $2.25 billion total – for fiscal years 2022 through 2026.

"The effects of the disruption of the supply chain this past year have been felt by business lines and families across the country and the world," Fitz O'Donnell, senior vice president of operations at St. Louis-based McCarthy Building Cos., told Construction Dive. "The image of so many ships waiting to call on our ports has served as a collective call to action to develop solutions."

The American Road and Transportation Builders Association (ARTBA) pegged port and waterway construction market activity to grow 6% in 2022, according to a 2022-2026 market analysis.

Similarly, the Port of Palm Beach will break ground on a $26 million port infrastructure development program in 2022, which will more than double the port's intermodal rail capacity, according to Fumero.

"It's all about moving containers in and out of the port as quickly as possible," Fumero said.

The Port of Palm Beach is also undertaking a multimillion dollar investment to repair and upgrade its container yard. The project received grant funding and port funds which total $2.9 million for the initial phase of the project. Soil investigations will start in the next couple of weeks and project bidding is estimated to occur at the end of the second quarter this year, Ron Coddington, director of engineering for the project, told Construction Dive.

"We have heard from several of our clients that they are actively working to accelerate their future capital improvement programs as the demand for marine terminal services continues to grow," said O'Donnell. "Projects that were scheduled for 2024 and beyond are being fast-tracked for permitting and execution."

Demand remains extremely strong for the construction of warehouses and distribution centers, and that should continue in 2022, according to industry experts.

"We had a record-breaking year [in 2021] for pretty much every fundamental we track: vacancy, rental rate growth, leasing activity, under construction," James Breeze, global head of industrial real estate at CBRE, a Texas-based commercial real estate services and investment firm, told Construction Dive. "We don't see anything changing [this] year."

Not only does he anticipate the same level of activity in the sector as was seen in 2021, he expects vacancy rates to remain at historic lows, with rents continuing to rise at a quick pace.

There is a steady flow of distribution and warehouse projects happening in early 2022, Mike Jones, project executive at Pankow Builders told Construction Dive, a California-based construction engineering company.

Major transportation corridors near large metropolitan areas such as San Francisco, Dallas, New York, Seattle, Miami, Houston and Chicago, continue to be "hot markets for the distribution and warehouse space," said Jones.

Proximity to ports, airports and trucking facilities are also underlying factors for determining where warehouse distribution facilities demand will continue to grow, Jones said.

Matt Rotolante, president of Lee & Associates South Florida, a commercial real estate brokerage firm, pointed to the continued growth of e-commerce as the underlying catalyst for the ongoing boom in warehouse and distribution center construction.

"We're starting to see a lot more automation," Rotolante told Construction Dive. "A lot of it is becoming computerized where robots are picking and placing the product from the truck, onto the warehouse racks and then pulling it as well."

He also noted that it's the details of their design that set this year's warehouses distribution centers apart, including larger parking requirements and higher ceilings. Some warehouses, for example, are now two stories high.

"We're certainly seeing a different style of construction," Rotolante said. "Historically, buildings were built 24-foot clear or 22-foot clear. Now, we're seeing them as high as 36 foot-clear just for regular distribution purposes."

Brian Sudduth, president of Miller Construction, a construction company with more than 500 completed commercial projects for the private sector in Florida, agreed the designs and specifications of these structures are changing as quickly as they are being built.

In addition to these large projects, smaller buildings to support last-mile distribution are also needed, Sudduth told Construction Dive. Jones agreed.

"Sites that are close to the core of a major metropolitan area to handle that last mile distribution and servicing is key," said Jones. "Part of that last-mile is repurposing buildings for a new use."

For example, dormant shopping center parcels are becoming an alternative for mini-warehousing and last mile distribution facilities, whether by retrofitting a defunct department store or large parts of the shopping center parking lot.

Breeze predicted that certain markets will see the most groundbreaking development for warehouses and distribution centers in terms of percentage growth over the next year or so. They include:

• Louisville, Kentucky
• Greenville, South Carolina
• Kansas City
• Phoenix
• Las Vegas
• Salt Lake City
• Central Florida

"There is very strong demand for first-generation space. The leasing is really strong, which points to this development continuing for the foreseeable future," said Breeze. "I do think there's markets that are going to start having a lot more construction than they did before."

Like grocers across the country, Karns Foods in Pennsylvania is grappling with rising prices and a rotating cast of supply chain shortages. That lack of control has been tough to swallow for Scott Karns, the 10-store company's chief executive.

"We order 2,000 cases and we might get 1,200," he said. "It's very frustrating for our customers to explain to them why they can't get exactly the flavors and the sizes they want."

The company is managing as best it can, Karns said. To combat price increases, Karns' stores are stocking their aisles with more private label products, which offer lower price points. To deal with supply shortages, managers are buying surplus quantities of items like toilet paper and pasta sauce when they can and offering shoppers a limited assortment in strained categories.

Karns said the company is also trying to source more products locally, including pork, which used to come from a Midwest supplier and now comes from an in-state one. In May, the grocer will begin sourcing around two-thirds of its beef supply from a handful of local farms that will exclusively supply Karns' stores.

So far, Karns noted, shoppers have rolled with the changes, but he's not sure how long that will last. "The basket is going to get more expensive as the year goes on," he said.

Retailers are nervously watching their shoppers as rising prices and out-of-stocks continue to plague their aisles. According to recent news reports and interviews, the main impact of these prolonged disruptions to date has been shoppers buying lower-priced items and grumbling about empty shelves.

But loyal consumers could reach a tipping point later this year, companies fear, and switch to stores that offer better prices or different products. During its third-quarter earnings call earlier this month, Albertsons executives noted the pressure competitors put on any decisions the grocer makes around pricing, and said that while its shopper loyalty is "strong" right now, the company is remaining watchful.

In an Ipsos survey of 1,000 consumers released in early December, 45% reported buying items from a store other than their primary grocer at least once a month thanks to supply strains or a poor online ordering experience. Eighteen percent of households with kids said they've changed to another primary grocer because of these factors.

"There's enough competition out there that consumers are changing their behaviors if what they need isn't in stock," said Mike Murphy, a vice president with Ipsos.

Krishnakumar Davey, president of client engagement with IRI, said the research firm is monitoring consumer elasticity, which measures shoppers sensitivity to price changes, "extremely closely." After a period of low elasticity earlier in the pandemic, when stimulus checks, child tax credits and at-home lockdowns fueled higher spending, that metric has started to rise to pre-COVID levels in many categories, he said. As of early January, breakfast meats and coffee were showing price sensitivity in line with those seen before the global health crisis, while hot cereal and candy were showing higher elasticity than pre-COVID, Davey said.

Across many categories, consumer elasticity is still lower than before the pandemic, Davey said, suggesting retailers have room to pass along price increases from suppliers, which have been hit with higher wages, shipping disruptions and other pressures. But retailers are concerned that the end of federal aid programs, like the expanded child tax credit that expired at the end of 2021, coupled with prices rising at a faster clip, could magnify consumers' frustrations.

Food-at-home prices rose 6.5% last year, according to the U.S. Bureau of Labor Statistics, and manufacturers are passing along additional increases beginning this month. IRI projects prices will rise an average of 5% in the first half of this year.

"What [retailers] are apprehensive about is that some of the stimulus is drying out, and price increases are going through a lot more this year than last year," Davey said. "They're saying we know that people like to eat at home, but people can substitute."

Staying 'agile' amid price increases

Although the root causes of inflation are beyond retailers' control, there are ways to effectively manage these price increases, experts said. Executives at Albertsons and other grocers have spoken in recent weeks about holding back increases on essential goods and key items while letting them flow through on more discretionary purchases.

Davey said IRI's scan data shows grocers are keeping down prices on fresh goods like milk, eggs and meat and increasing prices across center store categories. They're also pulling back on price promotions due to supply shortages and other challenges. He said that, percentage-wise, the center store price increases appear relatively the same across discount, mass and traditional retailers — which is somewhat surprising, Davey said, as he expected low-price retailers to hold back in an effort to win over comparison shoppers. But that could soon change.

Davey said retailers that are able to push personalized coupons and other promotions to price-sensitive shoppers are doing so.

"Right now, I think the main strategy is to give the discount to the buyers who need it," he said.

Steve Bishop, managing partner and co-founder of consulting firm Brick Meets Click, said retailers are using technology to spot price gaps and identify high-value items where they should be price competitive. Companies need to be particularly "agile" in 2022, he said, because the combination of high demand on certain items and supply shortages can make inflation appear quickly anywhere in the store.

"In the coming year, it will be even more important to change prices quickly to minimize any price vulnerability from higher prices that negatively impact sales or lower prices that negatively impact profit," he wrote in an email.

A value-price image can go a long way, sources said, even if prices overall have gone up. Marco Di Marino, director of consulting firm AlixPartners' retail and grocery division, said retailers are making selective price cuts and promoting key items where they've kept inflation from trickling in. Earlier this month, Winn-Dixie announced it's dropping prices prices by an average of 15% on more than 150 of its "most-shopped" items.

Retailers are also adding more store brands and value-priced items to their shelves, said Di Marino.

Krasdale Foods, which offers distribution and marketing services to independent retailers in New York and New Jersey, is seeing higher private label demand from retailers it serves, said Dennis Hickey, chief merchandising officer with the company. But Krasdale's private label suppliers are struggling with the same supply-chain shortages national brands face — like shortages of tin and other raw materials — meaning sometimes they don't have the products in stock.

Many of the retailers Krasdale works with are in the New York City area, where there aren't many discount players like Walmart. That's helped stores hold onto customers, he said, though companies are still carefully watching shoppers' behavior over the coming months.

"We're keeping a very close eye on trip frequency," Hickey said.

Learning to do more with less

Retailers learned early in the pandemic how to deal with supply shortages and communicate those to shoppers. The omicron variant, however, has once again accelerated out-of-stocks that are often impossible to predict as suppliers and distributors contend with worker absences and other challenges.

Executives are hopeful supplies will normalize beginning in February, after omicron has ebbed. Until then, retailers like Go Grocer in Chicago are having to limit their assortment and shuttle goods between stores to fill in product gaps. Gregory Stellatos, co-founder and co-owner of the Chicago-based chain, said all the supply shuffling during the pandemic has made shoppers less brand loyal.

"During this time, I think private label and emerging brands are the two winners," he said.

Hickey, meanwhile, said independent retailers have had to be very resourceful in order to get the supplies they need. They're cutting assortments by nearly half in some areas, he said. If Krasdale doesn't have an item they need, he said, they'll find another way to get it.

"Instead of carrying 25 flavors of Ocean Spray juice, they may be down to 15 or 16," he said. "They're spread out a little more, and maybe they've changed their allocations, but our retailers will go anywhere to get product when they need to fill shelves."

Karns said shoppers at his stores have responded so well to limited assortments that he's planning to continue the strategy long-term. "How many sizes of Hidden Valley Ranch do we really need?" he said.

The supply chain squeeze over the past two years has prompted Karns to make other long-term changes. After years of contemplating starting its own beef supply line, the grocer finally got started a year ago. It partnered with a local farm-management organization and is now overseeing Angus cattle operations at 15 family farms across six counties.

Karns Pennsylvania Preferred Beef selections will hit stores in May, Karns said, and have their own dedicated section. All told, the operation will account for around 70% of the grocer's beef needs, and could get close to 80% after adding several more farms. He said the new line will carry prices that are equal to its current beef selections.

"I can go out and visit the herds, which is something I've never been able to do in my 40 years in the supermarket business," Karns said.

As Hain Celestial prepared to consolidate two U.S. snack plants into one this past spring, CEO Mark Schiller faced a big problem that threatened to halt production of one of its biggest food brands: a labor shortage, which made it impossible to hire the 200 workers needed to staff the new facility.

The former Pinnacle Foods and PepsiCo executive quickly responded by hiring a manufacturer overseas before the product was air freighted to the United States "at a huge cost, just to be able to keep it in stock so the retailers didn't replace me with something else," Schiller said.

Today, that partner has not only become a permanent supplier but also the first in a broader push by Hain to diversify the number of companies who make its products and packaging, supply its ingredients and distribute its teas, yogurts and chips — to minimize the impact of a future disruption. It's counterintuitive to the past, Schiller said, where companies prioritized low-cost, highly efficient supply chains. 

"It's almost become the new normal that you have to have a very scrappy and nimble business model to be able to survive in this kind of environment," he said in an interview. "It's unprecedented."

'Never seen anything like this before'

Food and beverage manufacturers such as Hain are being inundated with a barrage of challenges that are testing even the most seasoned CEO. Supply chain disruptions, labor shortages, elevated consumer demand and soaring inflation are simultaneously battering CPGs, with little clarity on if and how things will finally improve in 2022. The disruptions have placed many executives in a bind as they try to remain competitive and respond to shifting trends.

General Mills, the maker of Cheerios and Nature Valley bars, said its challenges are especially prevalent across its supply chain, where it's facing record levels of disruptions, covering everything from ingredient suppliers and its own manufacturing plants to the warehouses of its customers. The Minnesota company has struggled in some cases to fully meet its customers' orders.

"If you look at our pricing ... we would offset the inflation. It's really the short-term supply chain costs, obviously that's really the bogey for us," Jon Nudi, who oversees General Mills’ North America retail business, said during the company's second-quarter earnings call in December. The company recently hiked the prices of some of its offerings by about 20% at the start of the new year, CNN reported.

Neil Saunders, a managing director with GlobalData, said executives at several CPGs tell him they are struggling to gauge how long many of the challenges they are facing will last and the best way to position their businesses to address them. 

"Even seasoned companies and seasoned industry executives who have been through the many ebbs and flows and cycles are all saying, 'Well, we've never seen anything like this before,' " Saunders said. "Wherever you look, there are unusual dynamics and it just makes planning very, very challenging and difficult."

The issues weighing on CPGs include unprecedented upheaval in the supply chain that has made it difficult for businesses to procure packaging, raw materials and trucks to keep up with heightened demand. The highly contagious omicron variant is further pressuring the supply chain by sickening workers at several CPG companies. 

"It’s entirely reasonable for all of us to project that the next month or so could remain strained within the supply chain as omicron runs its course," Sean Connolly, Conagra Brands' president and CEO, said last week.

Together, these disruptions have lead to frequent product shortages and temporary out-of-stocks for everything from V8 to Pringles to Nutella.

"The fact is, it’s like whack-a-mole," Vivek Sankaran, CEO of grocery giant Albertsons, said during the company's Q2 earnings call in October. He noted the unpredictability of carrying a particular item on the retailer's shelves. "On any given day, something is out of stock in the store."

The supply chain disruptions have prompted many companies to curtail promotional offerings. There is little need to boost consumption for a product when demand is already elevated and there is uncertainty over whether the manufacturer will be able to make enough of it in the first place, analysts and CPG companies said.

"You don't want to frustrate a consumer right at the store looking for a particular product, then they can't find it," said Erin Lash, a director of consumer equity research at Morningstar who has personally struggled at times to find Lunchables and small bottles of Gatorade for her family. 

The highest rate of inflation in at least a decade also is battering nearly every major food and beverage company, prompting them to pass along higher prices to the consumer across a broad range of categories.

Conagra, Campbell Soup, Coca-Cola, Nestlé and Hain are just a few of the CPGs to announce price increases. Analysts expect more hikes to continue through at least the first half of this year. Many CPGs have announced plans for or already implemented another round of price increases to further offset further escalating costs.

Any further increase would come on top of those already levied by manufacturers in 2021. Food at home has risen 6.4% during the past year — the largest 12-month increase since the period ending December 2008, according to the Labor Department's November consumer price index report. The six major grocery food groups measured by the government have all increased in the past year, ranging from 1.6% in dairy and related products to 12.8% in meats, poultry, fish and eggs.

Krishnakumar Davey, president of client engagement at IRI, forecast food prices to jump an average of 5% through the end of June. 

So far, there is evidence that consumers have shown a willingness to digest the price increases showing up for some of their favorite products. 

Total food and beverage volumes, which have benefited from the holidays and the rapid spread of omicron that may have shifted more consumption at home, have been stable at about a 2% to 2.5% per year increase during the eight weeks ending Dec. 26, according to IRI data. But the question looming over CPG giants is whether the price hikes will further weigh on the U.S. shopper. 

General Mills' Nudi noted elasticity is lower now than in the past, but he expects it to creep up going forward. Elasticity is defined as the change in consumer demand following a movement in the price, with lower elasticity indicating a greater number of shoppers are not changing their buying habits despite an increase in cost. 

Chris Foley, president of Campbell Soup's meals and beverages division, told Food Dive the maker of Swanson and V8 has moved cautiously in increasing prices to make sure they are commensurate with a rise in inflation. 

Campbell hasn't seen "dramatic changes [in consumption] based around specifically price," Foley said last month. "We're not seeing elasticity come in more dramatic than we forecast." 

PepsiCo CEO Ramon Laguarta observed a similar sentiment in October, when he noted that the snack and beverage giant has witnessed "much lower elasticity on the pricing that we've seen historically." 

A change in buying habits?

As the new year unfolds, people will become less willing to tolerate price increases and will change their buying habits as a result, said Davey at IRI.

Consumers will increasingly look to promotions and other value-shopping strategies. Premiumization, which has infiltrated many categories, will no longer be as attractive to low- and middle-income households. And private label, a category that struggled during the pandemic due in part to availability, will gain momentum, Davey said. Shoppers also will change what they buy, forgoing fine cuts of meat in favor of ground beef, or loading up on frozen chicken instead of fresh.

"When pricing goes up this much, then people shift down. They look for value," Davey said. "Some of the CPGs are talking about what happened in the past, which is long gone, that consumers are not price-sensitive."

Rob Vitale, president and CEO of Post Holdings, told analysts in late November that he observed "some uptick" in private label during the previous eight weeks but noted it was too soon to determine if it was the start of a more prolonged shift. Post's portfolio includes private-label offerings as well as brand names such as Pebbles cereal and Bob Evans frozen foods. "If these trends continue, it is an inflection point," he predicted.

A potential shift in consumer spending is at the heart of the uncertainty. Shoppers, many of whom cut back on traveling, eating out and commuting during 2020 and much of 2021, were left with more money in their pockets. At the same time, government stimulus provided extra cash that offset economic hardships caused by the ongoing pandemic.

But as savings shrink and government support declines, there is growing skepticism among many market watchers that consumers will remain as amenable to paying more for their meals and snacks in the new year. The risk for CPGs: Pass along such a severe price hike that consumers never return once economic conditions stabilize.

Despite the ongoing pandemic, people are traveling more and returning to routines they delayed like going to the dentist or meeting friends and family for dinner. Their willingness to splurge on holiday presents also will give way to a more conservative spending pattern as the new year unfolds, Davey with IRI predicted. And as more CPGs pass on higher costs to their customers, a groundswell of price hikes affecting even more products could weigh on shoppers.

One way to offset this is for food makers to cut back or carefully limit the use of promotions, change packaging and reduce the amount of product content while keeping the cost the same, tactics that are less noticeable to sticker-watching consumers. Hain's Schiller said the food maker is implementing these practices, but it may be several months before they appear on store shelves. 

Lash at Morningstar observed CPGs that have prioritized spending money on marketing and innovating across multiple tiers of products are positioned to be the biggest winners as buying habits shift. "The ability to keep a consumer within your brand family is much more cost effective and accretive than having to try to win or coax that consumer back," Lash said. 

Some executives have touted their ability to offer a range of products throughout their portfolio in case some shoppers decide to trade down.

"We're making sure that we are differentiated at each rung of the price ladder, whether it's entry to mainstream to premium so that consumers can stay within our franchise even if their circumstances might change," Kraft Heinz CEO Miguel Patricio said this past fall. 

Improvements in product offerings through new flavors, items that cater to trends like healthier eating or splashy new packaging also could make the shopper more willing to accept a price hike. Schiller said Hain has seen "very little volume fall off" from its price increases that have averaged between 6% and 10% because the company appeals to more affluent consumers and individuals who prioritize health and wellness.  

CPGs, for the most part, remain decidedly upbeat for the the new year despite the ongoing uncertainty.

Kellogg CEO Steve Cahillane told Wall Street in November that the cereal giant "has growth happening in most of our business that is very resilient, robust and sustainable."

In a November report, analysts with investment banking firm Stifel predicted food manufacturers will post organic revenue growth of 3.6% in 2022, even as pricing pushes volumes flat to down and food away from home continues to outperform.

"While it’s easy to get caught up in the quarter-to-quarter impact of inflation and pricing, it’s important to keep focused on the big picture," Conagra's Connolly said last week. "When you take a step back to evaluate the broader environment and how our portfolio delivers against the needs of the modern consumer, we believe that Conagra is uniquely positioned for the future."

Over the past two years, third-party delivery aggregators made a feast of the pandemic environment that threatened so many restaurant operators with famine.

Delivery accounted for 8% of restaurant sales at the end of Q3 2021 — a ratio experts predicted would shake out in 2025, NPD Group senior vice president and industry advisor David Portalatin told Restaurant Dive. Five years before the COVID-19 crisis, that percentage hovered around 3%.

But this elevated growth, which analysts said was driven by an increase in repeat customers, isn't likely to last.

"I don't think you're going to see a restaurant industry that is ever 20% delivered," Portalatin said.

Sales had already started to slow down at DoorDash and Uber Eats in Q3 2021, Lyle Margolis, CFA and senior director at Fitch Ratings, told Restaurant Dive. DoorDash's financial guidance also suggests it is going to flatten this year, Margolis said.

"We're not going to see that kind of meteoric growth we saw over the next couple of quarters," Margolis said.

As the space continues to evolve, aggregators are working to deepen their relationships with restaurants and find ways to make delivery work for them. Since 2020, these companies have added white label online ordering for restaurants, offered more flexible pricing and implemented subscription programs to boost retention among restaurants and diners.

Restaurants weigh the cost of delivery

As diner traffic returns to pre-pandemic levels, some restaurants are starting to rethink their delivery capabilities, especially since the channel is often less profitable than dine-in and takeout. A handful of operators within Darden, Cheesecake Factory, Dine Brands and First Watch have begun shutting off delivery during high in-store traffic times, for example.

But from a data standpoint, Marty Hahnfeld, chief customer officer at Olo, told Restaurant Dive the company has never seen this decision made at the top level of a brand.

"What we've seen are individual locations that are maybe in a bind looking to slow the pace a little bit," Hahnfeld said. "We can count on a couple of hands the number of times that's happened that we're aware of across our 75,000 restaurant locations. I think it's a great headline. I don't think it's really a trend that’s reflective of anything."

Even if these incidents are rare, they are an example of how operators are trying to balance delivery costs with delivery gains, especially as diners continue to demand the offering.

"There's a lot of tension between independent restaurants and third-party [aggregators]. It's expensive and where's that cost coming from? I'm a big believer that ultimately when the consumer demands something in the marketplace, there will emerge a solution that is palatable to all parties," Portalatin said.

Delivery companies have extended various incentives, including direct cash and subsidized rates, for independent restaurants over the past two years. But the dark side of aggregators' track records, including lawsuits and complaints over practices like high commission rates, are still top of mind for restaurants, Raj Joshi, vice president and senior credit officer at Moody's, told Restaurant Dive.

Still, delivery can be very beneficial for certain types of restaurants, such as operators that don't have their own delivery channel or others that have excess capacity and aren't fully utilizing their kitchen resources, Joshi said. But many restaurants may not need third-party delivery in a post-pandemic world, he said.

A wave of new product and service offerings

While delivery orders increased during the pandemic and the channel remains popular, about 44% of consumers are more likely to order directly for delivery from a restaurant. Comparatively, 17% of diners order from aggregators, according to a PYMNTS and Paytronix Digital Divide report, which surveyed 2,213 U.S. consumers from Sept. 2 to Sept. 9.

Delivery aggregators have responded to this consumer behavior by offering tools and resources that help restaurants create online ordering capabilities.

In 2020, Uber Eats added tools that allow restaurants to offer online ordering directly from their websites for pickup or delivery. Uber Eats' manager platform also lets operators view customer analytics and orders in real time. The insights provide suggestions of how to boost customer retention or orders. If a location has a 15% retention rate, which is lower than average, the manager platform might suggest the operator test a loyalty program or reply to reviews, Yadavan Mahendraraj, Uber's head of merchant operations in the U.S. and Canada, told Restaurant Dive.

"We're not only giving them more data, but also [we're] giving them a better way to parse that data," Mahendraraj said.

Grubhub added its Grubhub Direct product in May, offering independent restaurants the ability to create customizable ordering websites, manage customer relationships and access diner data.

These online ordering capabilities also give restaurants the opportunity to access delivery customer data, which has been a longtime interest of Grubhub's restaurant partners, Theresa Dold, vice president of agency services and product at Grubhub, told Restaurant Dive.

DoorDash launched its turnkey, digital storefronts in 2020 as part of its Main Street Strong Initiative. DoorDash found that a large portion of small and midsize businesses didn't have access to online ordering on their websites, and saw an opportunity to create that tool, which helped expand its offering from a marketplace to a broader platform, Ryan Parietti, DoorDash's senior director of merchant strategy and operations, told Restaurant Dive.

"All types of restaurant technology providers are figuring out, if they're not already playing in this branded online ordering space, how to get there," Dold said.

In-house online ordering systems also allow restaurants to avoid the commission fees that come with being on a third-party delivery marketplace. Grubhub Direct, for example, charges a monthly hosting fee for the website of $49 and a one-time set up fee of $99. Restaurants aren’t charged for marketing commission fees.

"[Restaurants] are going to want a platform that allows them to run a specific promotion for their branded online ordering site that might be distinct from what they’re running on [the] marketplace because of the profit margins they are trying to maintain," Dold said.

Grubhub Direct is also part of the company's long-term strategy to become a one-stop shop for restaurant partners.

"As a restaurant has evolving needs in terms of how they want to grow their digital business online, we believe we can plan an even more fundamental role in that journey outside of being just a marketplace for our restaurant partners," Dold said.

Delivery companies have also implemented different pricing structures to allow restaurants to pick and choose the kinds of services and fees that best suit their business plans. They have also been offering restaurants that do self-delivery ways to outsource the actual delivery fulfillment to aggregators in order to expand their reach and capabilities.

DoorDash launched its merchant pricing plans in April to provide more flexibility in different models, while Uber Eats did so in September. Both now offer tiered pricing depending on the types of services restaurants require.

"What I think you'll see most of all [is] it's not one-size fits all. I think you'll see all the platforms evolve to really give merchants that flexibility to make whatever choice they need that works for them," Mahendraraj said.

Both Grubhub and DoorDash also added self-delivery products in 2021, allowing restaurants to use third-party couriers alongside in-house delivery to complete orders and help expand their delivery reach.

"[Grubhub has] invested quite a bit in a product offering that will allow those restaurants to expand their delivery radius," Dold said. "That is something that I think will be really, really fundamental to Grubhub's growth and the success of our restaurant partners."

DoorDash also launched a nationwide shipping program last fall to allow customers to order items from local merchants across the country.

"We're really excited about that type of feature that really shows the deeper partnership … that we can build over time," Parietti said.

Retaining customers with subscriptions

While aggregators have expanded their products and services for restaurants, they have also boosted diner loyalty through subscription or membership services for a set monthly price, which is helping with customer retention and order volume.

"[Third-party aggregators] are going to become subscription services to some extent where it's going to make it that much easier for people to get delivery because they've already prepaid, which is going to help bring down some … costs," Matthew Goodman, senior equity research analyst at M Science, told Restaurant Dive.

Grubhub's subscription program, Grubhub+, has grown to 2.5 million members since its launch in 2020, and these subscribers now account for about 30% of its current orders, Adam DeWitt, Grubhub CEO, said in October during Just Eat Takeaway's Capital Markets Day.

"Because of our better supply, and … subscription loyalty program, diners are sticking around longer and ordering more," DeWitt said. "Our new diners are 20% to 30% more productive than [customers acquired in] 2019."

During Q3, DoorDash increased its DashPass membership to 9 million. M Science's data shows that about 25% of all DoorDash users at that time were DashPass subscribers.

In Q3, DashPass subscribers spent $650 to $800 per quarter on average compared to non-DashPass users who spent $200 to $300 per quarter, Goodman said.

Uber Eats members increased their trips per month by over 50%, Uber CEO Dara Khosrowshahi said during the company's Q3 2021 earnings call in November. Basket size for members was 10% higher than for non-members, he said.

In November, Uber also launched a membership program called Uber One that bundles its rides, grocery and food delivery services for a cost of $9.99 per month or $99.99 per year, and includes 5% off eligible rides and delivery orders, among other incentives.

"I think the more categories you expand to, the more perks and benefits you can layer into a program like that, the broader the appeal," Tom White, senior research analyst at D.A. Davidson & Co., told Restaurant Dive. "Just as Amazon over time added more value over time to its Prime membership beyond just free delivery, the industry will see companies like Uber continue to expand into new categories to enrich their membership offerings," White said.

Deepening restaurant relationships

Delivery aggregators have expanded their account management and sales teams as well to improve their relationships with operators and so they can better provide actionable data to their partners. Grubhub has been aggressively expanding its sales staff to bring on more restaurants in its stronghold cities and surrounding suburbs, and in some areas it has tripled its resources, DeWitt said.

"We want to be a one-stop-shop for all our restaurant partners' needs," Dold said. "As a restaurant has evolving needs, in terms of how they want to grow their digital business online, we believe we can play an even more fundamental role in that journey outside of [Grubhub] being just a marketplace for our restaurant partners."

DoorDash rolled out its Merchant Experience Partner program to provide better account management of its partners. Operators can reach out with questions related to menu updates, account settings and banking and reconciliation issues, for example.

DoorDash's Restaurant Advisory Council, which is effectively a group of restaurants and small business owners from the U.S. and Canada, also advise the company on key initiatives and give ground-up feedback on what restaurants need, Parietti said. DoorDash also brought on Chef Stephanie Izard as its chief restaurant advisor last May to bring another voice of the industry to DoorDash.

"I think keeping a tight feedback loop with our merchant partners allowed us to understand what the need was and then move really quickly into action," Parietti said, adding that its newest programs were piloted with a small group of merchants to make sure they were fully supported before they were launched on a full scale.

Uber Eats has hired hundreds of sales staff and account managers in local markets. By making staff that also live in these local communities more available to Uber Eats partners, the provider has been able to have longer and broader conversations with its merchants.

Uber Eats has more than tripled its workforce of account managers working directly with its partners, which gives them more time to learn about the partner's business, including what their goals are, how it can work with these partners and how they can help these partners achieve their goals, Mahendraraj said. That could mean helping them figure out what pricing structure works best for the partner or offering free credits on advertising that can help get the brand off the ground, for example.

"We've had almost a hundred conversations at this point with different merchants across our platform with our products teams and with our internal teams to just get a good sense of what is working, what is not. And as we look toward what we're going to build in 2022, you'll see that a lot of that comes from the asks they have made," Mahendraraj said.

These internal aggregator reviews, and subsequent product and service launches, bode well for the restaurant-delivery relationship, especially since analysts predict off-premise demand will hold steady.

"It's hard to imagine that there are any restaurants coming out of the pandemic that don't view online ordering and delivery as really a mission critical thing that they have to get right," White said

For supply chains, the pandemic has brought unprecedented levels of disruption. The specific confluence of events was beyond anybody's ability to foresee.  But, at least in a general sense, everyone should have expected something like the year that just passed to happen.

Risks of severe stress and even failure are built into modern supply chains — unintentionally, but they were there, for decades, for everyone to see. The very idea of a globalized "supply chain" is at least in part defined by risk. 

When linking up dozens or even hundreds of firms, with thousands of workers among them, all trying to move in coordination across continents to complete the task of of getting products on shelves — all sorts of things can go wrong. And there was never any reason why a whole bunch of things couldn't go wrong at the same time. 

For all the talk of crisis and collapse, the system largely held through the holiday period. But the past two years have laid bare vulnerabilities that have long existed in the system. To name a few: lack of capacity, manufacturing concentration by geography, length and complexity of supply chains, and scale mismatches among links in the chain. 

The question for retailers, brands, vendors and governments around the world is whether supply chains will be rebuilt for the future, with unknown crises in mind, or if the industry reverts back to "normal" once the current backups in the system ease.

Concentrated risk

To name just a few things that went wrong in 2021: A ship famously became lodged in Egypt's Suez Canal, blocking traffic for six days. China closed one of the busiest ports in the world because of a COVID-19 outbreak. Vietnamese factories were fully or partially shut down because of outbreaks, wreaking havoc on apparel and footwear production. 

COVID-19 also disrupted manufacturing areas in Bangladesh, India and other major producing countries, not least of all China. A demand surge in the U.S. led to shortages in cargo space, shipping containers and other equipment that led to skyrocketing ocean freight prices.

While tied together by the pandemic and its consequences, the problems were different and exposed different vulnerabilities in the system. 

Consider the impact COVID-19 outbreaks had on ports and factories in China. On the surface, it seems like a pandemic-induced problem. But a supply chain system less reliant on Chinese production could absorb those shocks with less pain and for fewer players.  

"Some of our clients are really taking a hard look at spreading risk so that it's not so China-centric or even Asia-centric," said Ron Scalzo, senior managing director in FTI Consulting's business transformation practice. "It's a hard thing to do. It's hard to get out. There's so much infrastructure and so much manufacturing capacity that's been built up in China. So it's not like flipping a switch."

Scalzo added: "It's easy when the disruption event, the black swan event — whatever you want to call it — is over to shift right back to the lowest cost solution, which remains China. But I think this was a wake up call for a lot of companies."

Supply chains aren't just concentrated by geography alone. In many cases, production of a good can be centered on just a few factories. Garphil Julien, research associate with Open Markets Institute, a nonpartisan group that advocates for more aggressive anti-monopoly policies, points to the market for semiconductors as a prime example.

That single component feeds into countless consumer electronics and other products retailers and brands depend on. "Semiconductors were a product the U.S. used to make in a relatively large capacity," Julien said. "Over the past few decades, you've seen consolidation of the semiconductor industry, the stripping of capacity, the shutdown of plants across the U.S. to a point where there are only three integrated device manufacturers, three companies that actually make semiconductors."

Along with the potential for price gouging, supply concentration also poses an obvious supply risk. It's the old saw about too many eggs in one basket. If a hurricane or earthquake — or a plague — hits the sole factory producing a given good, there is no more of that good until the factory has recovered. 

Super-sized clogs

It's not just supply itself that is concentrated. The top eight carriers control more than 80% of the market for ocean freight capacity, and carriers further form alliances with each other to expand their scale and reach. And while shippers saw freight prices blow up by many multiples, carriers had a phenomenal year. Bloomberg reported recently that ocean-freight carriers made an estimated $150 billion in profits for 2021, up nine times over from the previous year. 

"There is hyper-consolidation of shipping lines, and they have no incentive to invest in capacity," Julien said. "At the same time, they're making record profits. You really haven't seen anything like it. It's really frustrating at the same time, we're just really captured by these shipping companies."

Craig Philip, professor and director of Vanderbilt's Center for Transportation and Operational Resiliency, thinks the capacity crunch is short-term. "The market has reacted very quickly. The order book for new vessels has exploded," Philip said. "If we'd been having this conversation pre-COVID, we would be asking questions about whether the companies that own and operate those ships were financially vulnerable because there's too much capacity in the system."

One major source of that capacity is the colossal size of freight ships. When those huge ships connect to infrastructure and supply chain links that don't match their scale, that can be the source of bottlenecks, according to Philip.

The most visible was the blockage in the Suez, when a single, askew ship blocked an entire shipping artery for days at a time. "When I cut my teeth in this business in the '80s, the largest ship carried 2,500 or 3,000 containers," Philip said. "That ship that got stuck in the Suez Canal carried 25,000 containers. Wow. It's just mind-blowing." 

Philip added: "So that's one thing that we've supersized. The other thing is the distances that we think things can and should travel on a routine basis."

When gargantuan ships traveling interminable distances meet with modes of the supply chain not up to the same scale, problems can arise. 

"There are many elements of that supply chain that haven't been supersized in an equivalent way," Philip said, pointing to trucking as well as domestic port infrastructure and concentration of traffic around two major ports in Southern California, among other things. "And so now we're confronting the places where the frictions in the system become not a nuisance, but become a real, real big issue."

'Anything but agile'

Even for those companies that have worked on their supply chain over the years, many gaps exist. 

"One thing we've seen is that supply chains are anything but agile," said Matt Garfield, managing director with FTI. "Supply chain agility has been the bingo buzzword of the past decade. But what we've seen coming out of this is that companies design agility to solve specific tactical problems. 'If I have this lever to pull, I can be agile here.' But what they didn't develop the agility for was the confluence of all these levers being pulled at the same time."

Retailers have also long been counting on the just-in-time inventory model, which obviously is scrambled when backups create widespread and often protracted delays. Companies "are at least beginning to partially rethink that whole inventory position and whether there should be more reserve or safety stock, as well as a move toward nearshoring and onshoring," FTI's Scalzo said. 

Historically, retailers and brands shifted to lean inventory models to cut down on their costs of holding inventory, while limited inventory is also seen as a hedge against price discounting. But the cost accounting for lean inventories, like the low costs of production in China, doesn't typically factor in the costs of system breakdowns and black swan events. 

"In the past we used to have more inventory. Inventory was a good risk mitigation practice," Julien said. "Shareholders don't necessarily like inventory."

When crisis hit the global supply chain, firms reversed long-standing practices, which only made bottlenecks worse. "It's no longer a just-in-time world. It's a just-in-case world — just in case we don't get it," said Craig Austin, assistant teaching professor in at Florida International University, who has worked in industry in operations, logistics and freight. Businesses, Austin added, are stockpiling "because they're not sure that they can get their merchandise just in time." 

The warehousing, freight and other expenses to stockpiling raises overall costs for retailers, who are passing the costs on to consumers and in turn helping to push inflation, according to Austin. "Because they're stockpiling, you're paying for that inventory they're carrying," Austin said. "They have fewer [employees], and they have to raise wages — you're paying for it. And there's also a shortage of equipment, there's not enough containers." 

With inventory, as with so many things in supply chain, size matters. The average inventory days for the largest retailers and their suppliers (with revenue above $100 million) have actually decreased from 2019 to 2021, from 98.6 to 81.5, according to RapidRatings data compiled for Retail Dive. For medium-sized companies, inventory days increased slightly, and for small retailers the days increased significantly — by more than 39 days.

As RapidRatings Chairman and CEO James Gellert explained, larger retailers have demonstrated "a high level of resiliency" during the pandemic, with pricing power and the scale to compete for product. Smaller players, on the other hand, may have struggled to sell product as fast or have been stockpiling for the many uncertainties of the pandemic era.

Shining a light on supply chains

Inventory is one piece of the puzzle, but setting inventory levels is ultimately the easy part. Harder is managing an extensive, global network of firms that form what is called the "supply chain."

By its very nature, the supply chain eludes the control of retailers and brands, compared to a world where companies owned their own factories, when brands themselves produced the goods that bore their name. Not only do companies lack control over the external pieces of their supply chain, often they lack information and knowledge about their partners and their operations. 

Gellert said that amid pandemic disruption, some companies struggled to manage risks in their supply chains because of communication issues. In some cases, companies that were less prepared in supply chain risk management were even scrambling to figure out contact information for people at suppliers offices. 

With less control, and all the risk that brings, agility has become the byword. But how do companies actually get that?

Jess Dankert, vice president for supply chain at the Retail Industry Leaders Association, said large retailers are working toward building more "close collaborative relationships" with suppliers and other supply chain service providers, with open lines of communication and fluid information exchange. 

"A big piece to agility is visibility, knowing what's happening out there in your supply chain, to know not just where there's a bottleneck or obstacle, but also where there might be," Dankert said. 

Visibility is so important Dankert calls it the "holy grail" of supply chain and an area where retailers are investing. It takes talent, technology, data analytics, system interoperability among partners, and technological and strategic "control towers" to manage it all.     

Many expect the bottlenecks, backups and freight price spikes to continue through 2022, if not further out. 

Hedging against future crises is going to take a kitchen sink full of tools for companies, along with infrastructure investments in ports, transportation, warehouses and other areas bottlenecks occurred. All of which will take years to build out. 

It could also take a broad rethink of supply chains and their importance inside retail organizations, which historically have prioritized marketing and merchandising.

"One thing I think we will see is supply chain having a bigger seat at the table," FTI's Garfield said.