Shipping Crisis Could Delay Recovery, Disrupt Holidays

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The logjam in the twin ports of Los Angeles and Long Beach hit a record in late August.

Before the pandemic, a typical day would see an average of 16 container ships sitting in berths or (occasionally) the harbor. On Aug. 30, there were 76 – with 46 of those anchored or floating in the San Pedro Bay. It was the latest sign that the supply chain issues that first popped up last March have a long, long way to go before they’re resolved.

For most consumers, that’s a problem they’ve heard about but haven’t given an awful lot of thought. It’s a longer delay they’re forced to endure after ordering a new sofa or some mild frustration as they have difficulty finding an item at the grocery store – an inconvenience, but one that they can tolerate. That patience, though, could be tested as we move into the holiday months.

What’s causing the problems? It is, in large part, what you likely suspect: The pandemic and the spread of the virus has led to many port lockdowns and container ships being taken out of service. That impacted capacity, which led to the backlog and delays we’re seeing today.

Shipping containers, which store the merchandise, are in short supply, too. Cancellations early in the pandemic left many stranded in North America and Europe, resulting in a shortage in China when exports resumed. That’s driving the price of renting one through the roof. Drewry, a maritime research consulting firm, notes that a 40-foot container would have cost about $1,920 to rent a year ago. Today it’s averaging more than $10,000.

Shipping was never a small expense for manufacturers, but it has gotten a lot more expensive in the last 18 months. It now costs as much as 600% more to ship a container from China to Europe compared to 2019 costs, according to McKinsey & Co.

Changing consumer spending patterns have also played a role. The hoarding that took place at various periods through the pandemic (and which isn’t through yet) put a strain on the supply chain as manufacturers struggled to keep up with big spikes in demand.

Those spikes are about to hit again as consumers gear up to holiday shopping. Roughly 80% of all goods transported worldwide rely on shipping – and with the eight-week window before the holidays often making up as much as half of a retailer’s annual sales, that’s going to put further strain on an already taxed system.

The most recent monthly Global Port Tracker report from the National Retail Federation and Hackett Associates warns of potential shortages, noting that import growth at the nation’s largest retail container ports is declining.

“Supply chain logistics management is facing acute problems as disruptions make it difficult for both importers and exporters to transact their business,” said Ben Hackett, founder of Hackett Associates. “We are facing shortages in all sectors of the chain: a lack of sufficient shipping capacity, which leads to increases in the cost of shipment; lack of warehousing; lack of truck and rail capacity, and a shortage of labor across the board.”

There are already some hints as to what demand will be like in the coming months. The Home Depot, last month, said an early release of its Halloween decorations sold out “almost immediately” and that enthusiasm could be a canary in the coal mine to people looking to deck the halls later this year.

What does that mean for consumers? A couple of things. Companies, such as Crocs and Hasbro, have warned of possible disruptions because of shipping congestion. It could also mean higher prices.

“We’re implementing price increases during the third quarter that should be fully realized by the fourth quarter,” said Deb Thomas, chief financial officer at Hasbro on a recent earnings call. “We expect this to offset the rising cost of freight and commodities we continue to see across the business. We’re also working to ensure product availability during the holiday season. We may experience some shifts in delivery dates and timing of revenue, but we’re leveraging our global footprint and scale to meet demand.”

Businesses are looking at additional ways to get their product onto shelves, including more expensive air shipments. Experts, though, say that doesn’t guarantee you’ll be able to find what you’re looking for, especially as we get closer to the holidays. And they’re advising people to begin their shopping a lot earlier than usual.

“Getting ahead of the curve on holiday shopping is crucial this year,” says Brett Rose, founder and CEO of wholesale distributor United National Consumer Suppliers. “Once the prime shopping season comes around, it will be too late for most.”

Source: Nasdaq

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