Imports, Incinerators, and Landfills

By Jock O’Connell

We’re regularly being informed that the U.S. consumer is ultimately responsible for the surge in containerized imports that has clogged America’s seaports and inland supply chains these past couple of years. Finding themselves socially isolated by the pandemic, legions of Americans are said to have dealt with their constrained circumstances by assiduously indulging in the joys of online shopping, often ordering merchandise that can only be sourced overseas.

And that, as most nearly every maritime industry pundit and itinerant journalist suddenly assigned to the logistics beat has been reporting, is why we have ships laden with containers lined up outside of the nation’s ports.

Admittedly, as an explanation of what’s befallen us, it’s an ostensibly compelling stab at connecting the various dots. Yet, it’s also a narrative with one huge, if evidently inconspicuous flaw. For the fact is that exceedingly few individual consumers import anything.

Instead, importing is overwhelmingly the province of corporate intermediaries like Amazon, Walmart, Target, Home Depot, Lowe’s, and Ashley Furniture. And what’s important to recognize is that, given the time lags involved in obtaining products from abroad, these companies are principally in the business of divining what consumers might want -- or might be induced by clever marketing to buy -- at some future date.

There is an important distinction here. It’s not millions of consumers who have been driving up import volumes as much as it has been the armies of retailers using their best algorithms or educated hunches to guess what consumers might be interested in purchasing sometime in the next few weeks or months that have been principally responsible for the supply chain congestion we’ve been seeing.

Sometimes, the algorithms get it wrong, and the imported merchandise never finds a market, at least domestically. That’s one reason why over 15% of all U.S. exports are items that were previously imported but have been shipped abroad without any value-added. Not uncommonly, unwanted inventory must be destroyed, if only to make room for new shipments.

But it’s also true that retailers are engaging in some deliberately wasteful marketing strategies -- next-day delivery and liberal return policies instantly come to mind – that are contributing mightily to the port congestion these same retailers are bemoaning.

In last October’s edition of this newsletter, I offered the view that we’ve been importing much more merchandise than we really need. One reason for excessive import volumes involves the efforts of Amazon and its competitors to normalize the expectation of next-day delivery. In the age of mail-order, consumers were accustomed to allowing weeks to pass before their orders would arrive. Now, we fret if the goods aren’t here by the day after tomorrow.

Next-day delivery, however, requires a massive expansion of the logistical infrastructure supporting home-delivery. Clearly, getting the goods into consumers’ hands ASAP could never be achieved from the old formula of regional distribution facilities strategically sited near major population centers. Instead, next-day delivery gave rise to the rapid proliferation of fulfillment centers or delivery points, each of which must contain a vast array of merchandise ready to be shipped increasingly short distances on very short notice.

Swiftly complying with consumers’ orders may be the ultimate imperative, but the immediate logistical imperative -- stocking the shelves of these fulfillment centers -- has led merchandisers to import higher volumes of goods than would have been required had consumer impatience not been so abundantly rewarded.

In short, a successful marketing ploy that singularly appealed to a stuck-at-home populace has greatly inflated the nation’s import trade.

And, because not all goods eventually find their way to a customer, it’s a strategy that also contributes to the nation’s waste disposal challenges.

Now consider the impact on port operations of the remarkably lax return policies of most major merchandisers. Costco, for example, has a no-questions-asked approach to handling items its customers have decided they don’t want. Amazon is similarly liberal in accepting returned goods. Indeed, Amazon will now let you try on clothing for a week before billing your account. If you decide you don’t like the fit or the color, you can send it back at no charge.

So, you may ask, what happened to that tweed sport coat I wore for a couple of days before deciding the elbow patches might force me to take up pipe smoking? Did Amazon put it back on the rack? That’s likely what my local haberdasher would do, but then he isn’t seeing the enormous volume of returns a Costco or Amazon or Walmart typically receives.

According to a report released in January by the National Retail Federation and Appriss Retail, online sales were expected to total $1.050 trillion. Returns, however, were estimated to reach $218 billion or 20.7% of all sales. Some of these items do go back on the shelf and are ready for sale. But some wind up in landfills or incinerators because the cost of inspecting, repackaging, and storage outweigh any possible profit.

“From all those returns, there’s now nearly 6 billion pounds of landfill waste generated a year and 16 million metric tons of carbon dioxide emissions as well,” said Tobin Moore, CEO of Optoro, a consulting firm in Washington, D.C. that specializes in return logistics.

Similarly, Mark Cohen, Director of Retail Studies at Columbia University’s Business School told CNBC earlier this month: “We’re talking billions, billions, and billions of [dollars of] waste that’s a byproduct of consumerism run amok.” He went on to say that in most cases the merchandise cannot be resold. “The most expedient pathway is into a dumpster, into a landfill.”

Remember, at one point all that waste arrived at U.S. ports in shipping containers.

What’s the retail industry’s response to this problem? There’s little sign that major retailers are adopting policies to discourage consumers from returning goods. If anything, kicking back an online order is becoming less and less burdensome on consumers. Amazingly, some analysts think this should be seen as a marketing opportunity.

“Retailers must rethink [of] returns as a key part of their business strategy,” said Steve Prebble, CEO of Appriss Retail in the NRF report. “Retail is dealing with an influx of returned items. Now is the time to stop thinking of returns as a cost of doing business and begin to view them as a time to truly engage with your consumers.” [Emphasis added.]

Pity the port director trying to mitigate congestion or the dockworkers who must do the heavy lifting so that the nation’s retailers may better cozy up to their customers.

Disclaimer: The views expressed in Jock’s commentaries are his own and may not reflect the positions of the Pacific Merchant Shipping Association.