Retailers that benefited from trimming their inventories during the Great Recession are finding an unexpected side effect from that action has driven up the costs of getting goods shipped from overseas. It has also moved delivery schedules from just-in-time to just hope we get it sometime.
According to The New York Times, shipping companies took vessels out of service as the demand for products diminished. The report cited AXS-Alphaliner data showing more than 11 percent of the global shipping fleet being idled in the spring of last year.
Carriers, according to the report, have also moved to "slow steaming" in an attempt to cut fuel costs. At the same time, demand from other countries for goods has created a bidding war for deliveries. Companies today are paying two to three times what they were last year to get goods to port.
"All my customers, they're having a terrible time," Steven Horton, principal at Horton Global Strategies, a firm that negotiates freight contracts, told the Times. "With the increased cost and them not knowing if they're even going to get the space or equipment, it's a weekly battle."
A wide variety of manufacturers and retailers were cited by the Times for having issues obtaining product. The Container Stores, Cost Plus World Market, and True Value Hardware were all identified as having products show up too late for seasonal promotions.
To get products in on time, some companies are turning to air delivery, which costs roughly 10 times more than shipping by sea.
Jeff Turner, who is in charge of the supply chain and store operations for Cost Plus, told the Times, "We have agreements that literally say we don't have peak-season surcharges for our business, but we're treading completely new ground. Our carriers are coming to us and saying, 'If you want to get on the vessels, we need to figure out how you guys pay peak-season surcharges.'"
Discussion Questions: How big an issue is the current shipping situation for
U.S. retailers and their suppliers? What are the potential ramifications for
consumers? Does the current issue make the case for the benefits of manufacturing
closer to home?
[Editor's Note] The National Retail Federation (NRF) and Hackett Associates
are projecting imported cargo volume to be up 16 percent this month compared
to July of last year. A statement by NRF said, "double-digit increases
seen in recent months should taper offer this fall as retailers cautiously
manage their inventories."