Thursday, April 18, 2024

Washington Retail Report

US supply chain woes shift and persist in 2023

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The U.S. supply chain is still recovering from the initial shocks of the pandemic, which caused shipping costs to surge and led to shortages in various goods, ranging from toilet paper to pasta. However, more than three years later, challenges like material shortages and difficulties in hiring persist.

Americans have redirected their purchases away from big-ticket items – like furniture, BBQ grills, and large-screen TVs, to travel and entertainment. This change in demand has brought some relief to struggling shippers as transportation costs, including trucking and ocean shipping, have declined.

The labor market remains tight, contributing to rising costs throughout the supply chain. Material shortages persist, especially for machine parts and, increasingly cement. This is largely due to automakers and manufacturers striving to meet increasing demand, along with the ramp-up of infrastructure projects across the United States.

Dean Croke, a principal analyst at DAT Freight and Analytics, characterizes the situation as a lingering challenge for U.S. supply chains, akin to a “long-term hangover.”

Different industries are experiencing varying degrees of impact. The retail sector, which relies heavily on trucking and rail, has softened, while industries like automotive, coal, and non-residential construction materials continue to thrive.

Supply chain executives, previously invested heavily to maintain store shelves during the pandemic, are now focusing on cost-saving measures to protect their profits amid shifting consumer demand. Strategies like establishing local consolidation centers and optimizing delivery routes are becoming commonplace, exemplified by companies like Target.

There is a growing investment in technology solutions to enhance supply chain efficiency. These include tracking systems for real-time visibility into movement of goods, the integration of robotics, and the application of artificial intelligence to streamline operations. According to Alan Amling of, the University of Tennessee’s Global Supply Chain Institute, the industry is transitioning from a survival mindset to one that prioritizes efficiency.

Economic Update

The National Retail Federation (NRF) released it latest update on the state of the U.S. economy and how it is currently affecting retail sales.

According to NRF Chief Economist, Jack Kleinhenz, the U.S. economy is still growing, but not as fast as it was earlier this year:

  • The GDP growth rate was revised down from 2.4% to 2.1% for the second quarter of 2021.
  • The unemployment rate increased to 3.8% in August as more people entered the labor market looking for jobs.
  • Personal spending increased by 0.8% in July, but consumers are digging into their savings to support their spending.
  • Consumer confidence declined in August as high prices and interest rates weighed on shoppers’ decisions.
  • Retail sales rose by 3.8% year over year in July, boosted by Amazon’s Prime Day and other special events.
  • Spending on services, which has been growing since the pandemic restrictions ended, slowed down from 3% to 1.6% in the second quarter of 2021.

NRF forecasted that 2023 retail sales would increase 4% – 6% over 2022, but there is a good chance that sales will end up in the lower range of the forecast (if not lower) due to the Fed’s interest rate increases.

Washington state gas prices fall, but remain above $5 a gallon

Fuel prices in Washington state have finally seen a drop after months of soaring, but they still hover above the $5 per gallon mark. Despite this decrease, Washington remains the second-highest state in the nation for gas prices, trailing only behind California.

At the beginning of the year, Washingtonians were paying an average of $3.84 per gallon at the pump. However, according to the latest data from AAA on Monday, the average price for a gallon of regular unleaded gas in the state now stands at $5.06, down slightly from the previous week’s average of $5.09.

By comparison, California is grappling with even higher prices, with the average cost of gas sitting at $5.43 per gallon this week, up from $5.32 the week before.

Washington’s modest 3-cent decrease per gallon marks the first relief drivers have seen in months. Nationally the average has headed in the opposite direction, ticking up by 2 cents per gallon from $3.81 to $3.83.

AAA spokesperson Andrew Gross noted, “Pump prices appear to be defying the odds at the moment, despite the surge in the cost of oil. This uneasy balancing act may last until we get beyond hurricane season and its threats to Gulf Coast oil and gas production and refining.”

Washington’s current $5.06 per gallon is significantly higher than the national average of $3.83, surpassing it by $1.23 per gallon. Mississippi residents are paying the lowest gas prices at an average of $3.26 per gallon.

Within the state, there remains a substantial price disparity of $1.12 per gallon, although this has decreased by 9 cents from the previous week. In this context, San Juan and Asotin counties stand out as having the highest and lowest gas prices statewide, at $5.59 and $4.47 per gallon, respectively.

This variance in prices still largely follows the Cascade Range, with residents to the west paying a premium at the pump compared to those in the eastern part of the state.

The Washington State Department of Ecology has conducted three quarterly carbon auctions and one Allowance Price Containment Reserve auction this year, amassing over $1.4 billion. The third quarterly auction produced prices high enough to trigger a second Allowance Price Containment Reserve auction, scheduled for November 8.

Critics argue that the carbon tax is a major driver of Washington’s high gas prices, while Governor Jay Inslee’s administration and the state Department of Ecology maintain that the state’s cap-and-trade program, a component of the 2021 Climate Commitment Act, has had a minimal impact on gas prices within the state.

Adjustable worktable or mechanical aids are great ergo tools

Heavy lifting, lower awkward positions and static postures are all risk factors for workplace injuries. Over exertion injuries due to repetitive motion are the most frequent and costly injuries, and there are low-cost mechanical aids to prevent them!

Bringing the work to the ‘power zone’, between your knees and shoulders, is always best. For older workers that zone is a bit tighter, more at waist height because of losing muscle mass and strength. Working higher and closer to waist level can improve productivity and reduce fatigue. Consider these helpful tools:

  • Pallet jacks that have the ability to lift.
  • Adjustable work benches to fit employee’s natural working level.
  • Table with Lazy Susan allows workers to rotate with less potential for overreaching.
  • Any other mechanical assists to help with lifting, pulling, gripping and opening, will be a great benefit to worker productivity.

These mechanical aids are helpful to workers of all ages. They reduce time spent on material handling and the potential for overexertion injuries.

For deskwork employees, the solution is an adjustable workstation as well as adjusting their work posture throughout the day. Every change is an opportunity to get out of that ‘static posture’ and give your body a break.

Unemployment insurance trust fund recovering from pandemic era lows

During COVID pandemic curtailments, the balance in the Unemployment Insurance Trust Fund (UITF), which pays unemployment insurance benefits to unemployed workers, declined to less than $2 billion (less than 8 months of benefits).

The UITF is funded entirely from unemployment insurance taxes paid by employers. Because of the low balance in the UITF and the extraordinary demands on the fund due to high rates of unemployment, employers were facing increases of 200% or more in their unemployment insurance taxes – as well as possible surcharges – to maintain UITF solvency.

Fortunately, the Legislature responded to this crisis by appropriating over the $500 million of federal relief funds to backfill the fund, eliminating the risk of a solvency surcharge. Recognizing that employers were not responsible for pandemic-related layoffs, the Legislature temporarily adjusted UI experience rates to provide relief from unemployment insurance charges due to pandemic layoffs. In addition, the Legislature provided targeted relief for those employers that were most impacted by pandemic closures.

Recent data shows the Legislature’s actions worked. As the economy has recovered, so has the balance in the UITF. By the end of the 2023 fiscal year (June 30, 2023), the UITF balance had grown to $3.8 billion. Recent economic and revenue forecasts now project the fund continuing to increase to $4.4 billion in 2024 and $4.8 billion in 2025.

Under these forecasts, employer unemployment insurance tax rates should remain stable. Individual rates may fluctuate, however, depending on an individual employer’s layoff experience.

Retailers choose regional hubs to speed up deliveries

A recent WSJ article discusses how Target, one of the largest retailers in the US, has been using smaller warehouses (or “regional hubs”) to improve its online order fulfillment and delivery speed. The regional hubs include flow centers, which replenish stores with in-demand items more frequently and in smaller quantities, and sortation centers, which batch online orders by neighborhood for final delivery to customers.

Target indicates this strategy has helped it reduce its inventory levels, cut shipping costs, and deliver packages more quickly. According to John Mulligan, Target’s chief operating officer, customers who are close to sortation centers receive packages on average a day and a half faster than other customers. About one in three orders arrive in one day. The Minneapolis-based retailer plans to open at least six additional sortation centers by the end of 2026 as part of a $100 million investment to expand next-day delivery.

Other retailers, such as Amazon and Walmart, have been making similar changes to their distribution networks. Amazon recently created eight self-sufficient distribution regions and opened more same-day centers to prepare packages for immediate delivery. Walmart has been using its stores as fulfillment centers and partnering with local delivery services to offer same-day delivery for online orders.

Consumers are driving these changes with growing demand for online shopping and rising expectations for increased delivery speed and convenience. By using smaller warehouses that are closer to customers, retailers are shortening the distance and time that goods have to travel, while also saving on transportation and storage costs. While the consumer benefits, these changes make the network for retailers more complex and require more coordination and flexibility.

The top 10 most costly employee injuries

Tracking the top 10 causes of the most serious workplace injuries is worth the attention of employers. According to Liberty Mutual Insurance’s 2023 Workplace Safety Index (WSI), these injuries cost U.S. businesses more than $1 billion per week or over $58 billion annually.

  • The costliest injury is overexertion, costing $12.8 billion annually. The other top 10 costliest injury causes include:
  • Falls on the same level – $9 billion
  • Falls to a lower level – $6 billion
  • Struck by objects or equipment – $5.1 billion
  • Other exertions or bodily reactions, such as awkward postures – $3.7 billion
  • Exposure to harmful substances – $3.4 billion
  • Vehicle crashes – $2.6 billion
  • Caught in or compressed by machinery – $2 billion
  • Slips, trips, or falls – $1.9 billion
  • Vehicle crashes involving pedestrians – $1.6 billion

Exposure to other harmful substances and vehicle crashes involving pedestrians are on the WSI for the first time. These incidents were most often job-related, including:

  • Sales and truck drivers
  • Material movers
  • Foodservice
  • Distribution managers
  • Retail salespersons
  • Building cleaning and maintenance
  • Protective services

The report suggests that these increased job hazards were likely due to various innovative operations introduced due to the COVID pandemic and supply chain challenges.

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