At the Container Store, platinum-colour
hangers, advertised in a summer sale catalogue, were delivered days after the
sale began. At True Value Hardware, the latecomers were fans and portable
Fighting for freight, retailers are
outbidding each other to score scarce cargo space on ships, paying two to three
times last year’s freight rates – in some cases, the highest rates in five
years. And still, many are getting merchandise weeks late.
The problems stem from 2009, when
stores slashed inventory. With little demand for shipping, ocean carriers took
ships out of service: More than 11 percent of the global shipping fleet was
idle in spring 2009, according to AXS-Alphaliner, an industry consultant.
Carriers also moved to “slow
steaming,” travelling at slower and more fuel-efficient speeds, while the
companies producing containers, the typically 20- or 40-foot-long boxes in
which most consumer companies ship goods, essentially stopped making them.
“All my customers, they’re having a
terrible time,” said Steven L. Horton, principal at Horton Global Strategies,
which negotiates freight contracts for companies. “With the increased cost and
them not knowing if they’re even going to get the space or equipment, it’s a
Retailers and suppliers like
Mattel, Polo Ralph Lauren, Jones Apparel Group, Costco, VF Corp., Big Lots and
Lifetime Brands have reported being hit with higher prices and capacity
The fight for space means many
retailers are expecting higher sales, which is a glimmer of good news. And air
carriers are picking up some last-minute shipments from desperate retailers;
FedEx reported Monday that it expected increased earnings for its first
quarter, ending next month.
For most retailers and suppliers,
the shipping problems are a huge headache at a time when retail sales are weak
and consumer confidence is waning.
“It’s made this key selling season
even more complicated,” said Edward J. Yruma, an analyst with KeyBanc Capital
The shipping companies slowly added
ships back into the system early this year, but they did so haltingly, not
wanting to add too much supply and risk having their rates fall. (Major
carriers largely hew to the rates set by carrier groups, which are allowed to
discuss and set voluntary rates, under antitrust immunity.) Lifetime Brands,
which makes and sells products under brand names like Cuisinart and KitchenAid,
said it is now paying about double last year’s rates, and Costco said it is now
back to 2007 rates.
Companies that lack contracts with
shippers are paying even more. The cost of shipping a 40-foot container from
Hong Kong to Los Angeles without a contract, or the spot rate, was about $871
in July 2009, a five-year low. This month, that spot rate reached $2,624, a
five-year high, according to the industry consultant Drewry Shipping
Consultants, as reported by The Journal of Commerce. That exceeded even the
cost before the recession, which was about $2,000.
Because of slow steaming, which
takes containers out of the system for a longer period of time, and because
places like Russia and India began to demand container space, finding something
to ship goods in, much less space on a ship, has been problematic.
“There aren’t enough actual
containers, so therefore, even if the vessel capacity situation is easing up a
little bit, you now have equipment that people can’t get,” said Peter
Tirschwell, senior vice president for strategy at The Journal of Commerce.
(While container shipping has
recovered from last year’s lower spot prices, commodity shipping, where
companies ship raw goods like iron ore or petroleum, remains in a depression.
This month, the Baltic Dry Index, which measures commodity shipping costs, fell
for the longest number of consecutive days in almost nine years because of low
demand for materials like steel.)
The problems in container shipping
from Asia are the most pronounced, retailers say, but shipments from other continents,
and via domestic trains and trucks, are proving difficult as well. The effects
have been severe for some retailers and suppliers.
To get products in on time, they
need to spend a lot more. Cost Plus World Market, for instance, has used air
freight for some time-sensitive items, and that costs about 10 times what sea
freight does, said Jeff Turner, who oversees supply chain and store operations.
And for sea cargo, even though contracts with freight companies exempt Cost
Plus from summer surcharges, known as peak-season surcharges, the retailer is
“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,”’
Mona Williams, vice president for
buying at the Container Store, said the company was telling manufacturers to
book space well in advance, and that it was moving delivery dates earlier.
And for items that simply must
arrive, well, there are ways to do it.
“Sometimes you can offer to pay a
steamship company a larger amount of money, and they might take somebody else’s
container and not put it on,” said Jeffrey Siegel, the chief executive of
Lifetime Brands, but “in most cases, you just have to wait.”
To play it safe, Siegel has started
scheduling items to arrive as long as three months before they need to be in
stores. That means a higher cost for holding inventory than usual, but interest
rates are relatively low, and he would rather have the goods in hand, he said.
The companies also risk losing
sales if anything is late.
For instance, Cost Plus, a home
decor chain with more than 260 stores, had to quickly revise advertising and
in-store arrangements when it learned grills would be late for Father’s Day,
and beach chairs would arrive after a summer promotion ended.
“You’re trying to convince your
customers to take a rain check – ‘It’s coming’ – or explain why it’s not
there,” Turner said. “It’s not easy.”
For True Value, which had
difficulty getting summer items like fans and grills on time, the worry was not
about the retail customer but about the stores it supplies.
“True Value stores can buy from
other wholesale distributors, so they can look elsewhere,” said Don Deegan,
vice president for logistics for True Value.
The company has bought more
expensive items when it knew it would miss a deadline, he said, to placate the
Steve Walterscheid, the president
of Zing Toys, which makes some summer toys, said that after his orders kept
getting bumped from ships, some retailers would not take the late deliveries.
“Some will still accept it, some
won’t,” he said. “In a short season, if you miss two weeks of a season, that’s
quite a bit.”