Since the end of November 2023, more than 35 container ships have been attacked in the Red Sea by the Houthi militia from Yemen. As a result, one of the most important global trade routes is literally under attack. The militia mainly attacks ships en route from Asia to Europe via the Red Sea and the Suez Canal. The Houthis say the attacks are a response to the war between Israel and Hamas and that only ships with a connection to Israel are targeted.

The impact of the attacks on the global economy is significant, leading to longer delivery times and higher shipping costs. About 12% to 15% of world trade sails from Asia to Europe via the Red Sea and the Suez Canal. The container ships transport essential and strategic resources such as oil and gas, but especially everyday products that keep our economy running.

Due to the dangerous situation, many shipping companies avoid their regular route via the Red Sea and the Suez Canal and opt for the longer route around the southern tip of Africa. That route is 8 to 10 days longer and causes delays, higher shipping costs and more expensive freight insurance. These extra costs and delays threaten the margins of many (online) retailers, among others.

In this blog, we explain the impact of longer delivery times and higher shipping costs and what you as an entrepreneur can do to limit the dangers.

Afbeelding 1 voor Blog 7 signalen voor vraagplanning en vraagprognose

What do the longer delivery times and higher shipping costs mean for your e-commerce business?

What are the dangers of higher shipping costs and delays for your business and what challenges could arise if this situation continues for longer?

1. Inventory management challenges

Longer delivery times can make your inventory management a lot more difficult. You have to look further ahead to be able to anticipate customer demand. As a result, you may purchase too much or too little, resulting in higher costs and cash piled up in inventory or possibly lost sales due to the lack of products that are in demand.

2. Impact on cash flow

Higher shipping costs can put pressure on your company’s cash flow. If shipping costs are higher, it could impact your ability to invest in other parts of your business or manage overheads.

3. Margins under pressure

Additional shipping costs can threaten your margins. If costs increase significantly due to choosing longer routes or alternative shipping methods, your business may have to absorb these costs or pass them on to customers.

4. Reduced competitive position

Longer delivery times can make your business less competitive. Customers may choose to order from a competitor because of faster delivery.

5. Reduced customer satisfaction

Longer delivery times can lead to negative reviews, reduced customer loyalty and damage your company’s reputation.

Curious about what you should pay attention to to keep your cash flow moving? In the white paper, you find six smart ways to get a grip on your supply chain and prevent money from getting tied up in excess inventory.

How do you limit the impact of longer delivery times and higher shipping costs on your company?

Purchasing and inventory management software provides important solutions to limit the impact of longer delivery times and higher shipping costs.

1. Gain insight into customer demand

Inventory management software uses historical data to more accurately predict customer demand. With accurate forecasts, you gain insight into future demand trends (seasonal and market-related) to make your purchasing decisions more accurate. By purchasing based on data you are more certain about the volume, costs and delivery time.

2. Optimise your inventory

Inventory management software allows you to balance your inventory, which is essential when the cost of your purchase orders increases. You gain insight into your fast- and slow movers by categorising your products with an ABC analysis. It allows you to focus on your most important products and ensure that these items are always in stock.

3. Reduce transportation costs

Purchasing software can help analyse fill rates and container capacity. This allows you to maximise container usage and minimise wasted space. Optimise container usage and minimise costs by reducing the number of shipments. Keep your cash flow afloat by shipping orders in fewer shipments.

4. Purchase locally

Ask yourself whether you should purchase your products in Asia. Are there alternative producers or suppliers closer to home? By purchasing locally, you can make your supply chain more sustainable and shorten the delivery time of your purchase orders. Focus less on margins and more on shortening delivery times so that your product availability remains in order.

5. Improve your supplier management

Purchasing software can improve communication and collaboration with your suppliers. You can track performance data from your suppliers, such as lead times, on-time deliveries and product quality. Tracking this data can facilitate negotiations for better shipping terms, discounts or alternative shipping methods. This allows you to reduce the impact of higher shipping costs or late deliveries.

6. Choose dynamic pricing strategies

You can integrate advanced inventory management software with price optimisation tools to implement dynamic pricing strategies based on factors such as shipping costs, demand fluctuations, and competitor prices. This allows you to dynamically adjust your prices to offset higher shipping costs while maintaining your competitive position.

Curious about what you should pay attention to to keep your cash flow moving? In the white paper, you find six smart ways to get a grip on your supply chain and prevent money from getting tied up in excess inventory.

Use data to deal with longer delivery times and higher shipping costs

It is difficult to predict how the situation in the Red Sea will develop. Even if the attacks of the Houthi militia end, major transport companies such as Denmark’s Maersk expect the consequences to be felt until the second half of 2024. This means that higher costs and longer delivery times for shipments from Asia will have an impact on your purchasing and inventory management.

Using smart purchasing and inventory management software allows you as an e-commerce company to tackle the challenges of higher shipping costs and delayed deliveries.

  • Use data to understand demand.
  • Analyse and optimise your inventory levels.

On the one hand, this prevents cash from getting tied up in your inventory and, on the other hand, you avoid losing out on sales.

Make sure you use smart software to deal more strategically with your suppliers.

  • If orders are delayed, you can request a deferment of payment until after the shipment has arrived to maintain your cash flow.
  • Ensure that if you have orders shipped in a container the container is completely filled – so that you maximise usage.
  • Have an alternative for suppliers who have more difficulty delivering, for example by ordering within Europe.

Maintain your competitive position, keep your product availability up and do not let your customer satisfaction be jeopardised.