Media coverage of supply chain disruptions during the COVID-19 pandemic has made the “average Jane or Joe” more aware of what supply chains are than ever before. Port congestion has been an almost-nightly topic on the news. But reverse logistics, or returns, is much less talked about. I recently discussed these two aspects of supply chains with Dr. Carla O’Dell, chairman of the board of APQC on a podcast. Click here to listen: Supply Chain for Pros and Average Janes and Joes:
Reverse Logistics and Port Congestion. And click here to read a summary of the podcast.
Much of the news coverage related to supply chains is about late packages, shortages, and port congestion…it’s often not a happy story. But one thing we don’t hear much about is returns/reverse logistics. And what we found may shock and/or alarm you.
Let’s start with a pop quiz. Do you know the significance of the date January 31st, 2022 (besides the last day of January)? Answer: That was the last day to return many of the things we bought online for Christmas and Hanukkah.
What happens to all that stuff we send back?
When you say the words “reverse logistics,” it sounds like a dry topic that only supply chain people really care about. However, all those holiday returns from gifts that didn’t fit or were the wrong color must go somewhere when you send them back. And the question is, what happens to all that stuff that people return? The bottom line is there really are no such things as free returns. We often, as consumers, think, “Oh, that’s awesome. It’s free, doesn’t cost anything to return it.” But the reality is that someone in the supply chain somewhere along the way is paying the cost of that return. To use the military acronym BLUF (bottom line up front), I’ll give you the BLUF on these returns: the vast majority of them end up in the landfill.
Here’s a word for you: wardrobing. It’s when someone orders the same item in three different sizes to see which one fits, and then they return two of them. And I’m guilty of doing that, along with many of our readers, I’m sure, but what we don’t realize is that those other two that we return often don’t go back on the shelves. They frequently end up in the landfill. The scope of this problem is mind-boggling. So last year, 2021, the National Retail Federation said that retail sales in the US exceeded $4.6 trillion, compared to 2020 at only $4 trillion. That’s a big number, but even bigger and more mind-blowing is that the value of returns for last year were more than three quarters of a trillion dollars, more than $761 billion in the US. And that’s more than 16% of sales turning into returns. Let’s not even get into the 16 million metric tons of carbon dioxide emissions from those returns. Or the fact that 10 percent of those returns are fraudulent (i.e., people returning things that weren’t defective, possibly stolen, with counterfeit receipts, etc.).
Marisa, I’ve got a bag of stuff sitting by the front door that I was going to take back to the store. But, instead, I think I’m just going to take it to a local charity. Is that a reasonable option?
That certainly is one option. I read a quote from a professor at Arizona State University, “The life of a return is a very, very sad path.” And part of that is because an estimated one-quarter of returns are thrown away. If we can figure out ways to keep our returns out of the landfill, I think we’ll all be in a better position.
One of the things that determines whether the returns that you’ve got sitting by your door go back on the shelf or not, is the value of them. We see it as a brand-new shirt, but the companies you are returning to have to figure out if that product is actually worth the cost of paying for shipping it back.
Store representatives can’t take your word that it’s in pristine condition. They must assess the damage. Maybe they have to clean it, repair it, test it, make sure it still works. And all those activities cost money and require labor, which we know both are in short supply these days. We end up creating about 6 billion pounds of landfill waste a year just in the US from returns. So, anything you can do to either not purchase it in the first place or donate it when you are done helps the planet.
In looking at what companies do when you return stuff, there’s the option, especially for things like pricier clothes, to clean it and put it back on the shelf. Companies also sell refurbished or used goods, maybe in an open box for electronics. That’s another way some of our returns get back into the cycle. There is also the liquidation market where companies will auction off unwanted inventory, but they get pennies on the dollar for the value in that case. And here’s another nice phrase: energy recovery, which means they burn returns.
Besides just throwing it out or burning it up, I am encouraged by new initiatives. There are examples of companies that are upcycling returns. For example, they take athletic shoes that get returned and grind them up and turn them into track materials. That does still take energy, and it requires an investment on the company’s part, but it does at least keep it out of the landfill. We are seeing organizations like Good360 where excess goods and returns are getting donated to charity and then ideally repurposed to people who need it, including in post-disaster situations. So, there are some good news examples of unwanted over-purchased items staying out of the landfill.
Let’s shift gears and move from going in reverse to going forward. Let’s look at what’s happening with demand. We’ve all seen pictures of shipping containers just stacked up sky-high on the docks. Carla, you had the opportunity to visit the Port of Long Beach in person. What did you see? How bad is it?
Well, I’ve been twice recently, and it is interesting to see the difference. I went once in May 2021, before the holiday ordering rush started, and then again in December 2021, which was six months apart.
First, a little context. This is the stuff most people know, even an “average Joe” like me. The ports of Long Beach and Los Angeles, just those two ports alone, handle 40 percent of all the US container imports. And that’s because of the enormous trade that we have with Asia, primarily with China. The rest of the containers come in through Galveston, Seattle, and ports on the east coast.
In May 2021, when I was there, there were 70 ships berthed that I could see. The docks were overflowing with these containers with no place to go and no room to maneuver. Every empty parking lot in Long Beach was full of containers. I don’t know if they were empty, getting ready to go back, or if they were full. But there were ships you could see from the shore as far as the eye could see.
When I revisited the Port of Long Beach in December, I couldn’t see as many ships because the rules had changed to have them anchor farther out. Correct me if I’m wrong, but there was also a threat of huge fines if you have containers sitting on the docks too long. There were now 111 ships instead of 70. It was seven times as many as the average before the pandemic, but nobody could see them. I’m not sure how many ships are waiting today.
The congestion is not because people are not working. Seven times as much stuff has been ordered, passing through the choke points. And it’s up 79 percent from September. So that’s the whole Christmas rush. The choke points, the bottlenecks are the shortages of dock workers, trucks, and rail cars. But the cause is this frenzied over-consumption because the data says the docks are working at pre-pandemic or near pre-pandemic levels.
What is driving this frenzied consumption?
Of course, there’s the fear of missing out, that if I don’t order it now, I’m not going to get it. It won’t be available later. And there’s been some evidence to support that. But it’s a self-fulfilling prophecy as well, as we all order more than we need and then hoard it.
There’s another thing driving frenzied consumption, and that is shopping as “retail therapy.” People can’t go out due to the pandemic, but they can get online and in one click, purchase things. That’s what made Amazon the biggest store in the world—the one-click purchase and buy it now button. There is also enough money to do it since the US savings rate is at the highest level since just after World War II. And that’s a good thing, right?
There are always silver linings to these things. Retailers have repurposed a lot of shuttered storefronts for warehouses, ghost kitchens, and others. This enables them to take more control over their mission-critical supply chains. And they’re trying to shorten supply chains or have multiple suppliers—and APQC has a whole shtick on supplier relationships that I think is really going to be important here.
But what can we do? In addition to donating unwanted goods vs. filling the landfills, we can buy less. Ask yourself: do I really need it? Frenzied consumption is one reason the shelves are not stocked, and inflation is high. Inflation is, by definition, too much money chasing too few goods—because there are too many non-essentials being purchased.
Buy less or buy more local, which you can do in all kinds of ways, including even online; the more you can do that, the greater chance you have of helping to keep prices down for items like food. Also, all that excess inventory—to the extent that it’s consumer facing—is retail product that is going to go on sale. And boy, there’s nothing people like better than a sale.
Moving Forward
Hopefully, as we find our way through this pandemic and economies and countries reopen, people can once again start enjoying experiences and spend their money and their time on those kinds of things instead of just frenzied buying of goods. And we’re hoping that the light at the end of the tunnel is not an oncoming train.
We asked you about the impact of these supply chain disruptions, and here is what you told us:
Examining the Impact of Supply Chain Disruptions: 2022 Infographic
The Impact of Supply Chain Disruptions: 2022 Quick Poll Results
To continue the conversation, comment below, follow Marisa on Twitter at @MB_APQC, or connect with her on LinkedIn.