Walmart, Target, Home Depot, and other major retailers are chartering ships to bypass supply chain issues. Will Strategy Save Christmas?
With supply chain channels harassed by the effects of the COVID-19 pandemic, major retailers like Target Corp. and Home Depot Inc. are taking matters into their own hands and chartering ships to deliver goods in time for the important holiday season.
Retailers large and small, consumer packaged goods companies and other businesses have been affected by COVID-related bottlenecks at ports, overseas manufacturing shutdowns and other related high costs the transport of goods. Dollar Tree Inc. DLTR,
for example, said a ship was delayed for two months after a crew member tested positive.
Large retailers with generous pockets are leveraging their significant financial resources to avert a holiday season supply chain disaster, but it comes at a cost.
“It’s a very expensive thing,” said Michael Zimmerman, partner at global consulting firm Kearney, who said vessel leasing was a solution at the moment. “If you’re a mid-size retailer or an emerging fashion brand, you can’t charter your own ship. “
The cost of renting a vessel ranges from around $ 1 million to $ 2 million per month, according to Zimmerman, plus operating costs, including the cost of renting containers, which can run into the hundreds of dollars. The largest retailers use between 500 and 1,500 containers per month.
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“The most important aspect of this is the ability game rather than the savings game,” Zimmerman said.
“Yes, there are savings, but you lease the ship for two to three years, so this is a big commitment that you will have to meet or later sublet at a loss if the shipping container market collapses.”
Yet for these mind-boggling prices and a lot of risk, companies that charter a vessel now have a say in where it goes, giving the company the ability to bypass blocked ports and other systems.
“Cargo moved to other ports, with imports through Seattle and Tacoma ports up 40.6% from 2019 and imports through east coast ports up 36.1% during the same period, “said Panjiva, the supply chain research unit of S&P Global Market. Information, in a report.
Los Angeles and Long Beach are two typically popular ports. Panjiva reports that import growth at these ports slowed in July and August. Media reports, such as that of the Washington Post, have included mages of record-breaking lines of ships lining up to enter these ports.
Under normal circumstances, companies pay a fraction of the cost to share a ship with other customers and only rent the space they need for the cargo they move. When a company ships with a carrier or other intermediary, the cost of renting a container from origin to final destination can reach $ 10,000 each.
The cost of renting a container was also high during this turbulent time.
says it is the second largest US importer behind Walmart Inc. WMT,
“We… have chartered our own container ship to regularly move Target cargo from overseas ports to the United States. As co-managers of the vessel, we can avoid delays due to additional stops and avoid particularly safeguarded ports “the company wrote in a statement. blog post posted on his site last month.
Target kicks off the holiday season with Target Deal Days starting October 10.
HD from Home Depot Inc.,
COO Ted Decker said the company had found a “creative solution” to its merchandise supply problems.
See: Buy early and expect to pay more: Supply chain issues could be a stumbling block for optimistic holiday shopping forecasts
“Our supply chain teams have recently taken advantage of our scale and flexibility to organize multiple container ships for our exclusive use,” he said during the company’s second quarter results, according to FactSet. .
The chief financial officers of Walmart’s COST and Costco Wholesale Corp. also spoke about their decisions to charter vessels during their results reports. Costco chartered three ships to transport items to the United States and Canada from Asia in several thousand containers.
“Each ship can carry 800 to 1,000 containers at a time and will make approximately 10 deliveries over the next year,” said Richard Galanti, chief financial officer of Costco, during the fourth quarter earnings call in late September. , according to a FactSet transcript.
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Going back as far as summer, analysts have sounded the alarm bells for toy supplies during the important calendar period.
Granted, companies could see the problem getting worse and started taking action early. Build-A-Bear Workshop Inc. BBW,
CEO Sharon Price John told MarketWatch her company “has placed some orders” in anticipation of any challenge.
Data from Ware2Go, a UPS of United Parcel Service Inc.,
company specializing in one- and two-day delivery, says 63.2% of merchants ordered their holiday inventory in August, 44.4% ordered more than usual and 43.3% ordered earlier than usual. ‘habit. Yet nearly 20% of traders say they are not sure items will arrive in time for peak season.
Off the ship, large companies have the manpower to work around the clock to make adjustments to a system that has many moving parts, including the management of goods that are currently at different stages of the chain. supply.
Going forward, Kearney’s Zimmerman believes large companies will re-evaluate the supply chain now that they have lost faith in the brokers who typically run this type of shipping service.
“It used to be about optimizing for perfection,” he said. “But the experience that shippers [like these major retailers] were by means, there will be more contingency planning.
For example, Zimmerman says consumer companies will likely plan for a ship leasing option that will give them a certain volume of cargo that they can control even when things get back to normal.
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The supply chain situation the world finds itself in has never been seen before, even with the Great Depression in mind, Zimmerman says. Back then, the problems built up over time. Now there are “insane gyrations” as the supply chain goes through the ups and downs of managing an ongoing global pandemic that does not resolve in a straight line.
“The supply chain has been optimized for very efficient movements. It all exploded, ”he said.