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New Seaborne Shipping Rules Could Increase the Cost of Trade

Back-to-school season could spell trouble for shipping when new weight verification rules take effect this summer—not to mention the increase in trade costs likely to follow.

Starting July 1, shippers will have to verify container weights prior to loading if they want their cargo to go anywhere, as per the revised SOLAS (Safety of Life at Sea) regulation.

And according to the World Shipping Council, there’ll be two ways the shipper can do this: weigh (or have a third party weigh) the packed container to get the gross mass, or weigh all of the container contents and packing materials and add the mass of the container to the masses of the container’s contents.

“The shipping lines are trying to enforce correct loading in terms of weight in a container,” Shakil Tapal, president of Synergies Home, said. “Commodity brokers are filling the container above its max capacity and causing damage to the container and shipping lines’ equipment. They will now try to weigh the container at origin and avoid any excess loading.”

The changeover, however, could have adverse effects on shipping this back-to-school season.

Financial services firm Cowen and Company said the confusion surrounding the new seaborne freight regulations could cause delays while shippers adjust to the changes, and those delays could set back back-to-school stock, which largely ships in July.

“Any inventory flow disruptions may have an outsized impact on retail results as most companies are guiding to a stronger second half with back-to-school leading the way,” Cowen said in a report released Monday.

If the shifts send shippers haywire, it could mean an uptick in air freight as carriers look to skirt slowed shipping times, which would also be a win for container lessors since demand would be higher with the slower container turnaround.

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In short, according to Cowen, “The cost of trade is likely to rise with the introduction of SOLAS. Our industry checks suggest the total landed cost to ship an FEU [forty-foot equivalent unit] from LA to Shanghai could increase by approximately 14 percent.”

Drayage carriers could hike their fees for longer detention time and mileage, and freight forwarders could see more shippers knocking on their door for help with how to navigate this new environment.

Though there may not be a major disruption to merchandise flow, SOLAS could make already unfavorable inventory issues worse.

“While our sector is currently grappling with an inventory overhang from an unseasonably warm fall 2015 and the West Coast Port disruption, the timing of this legislation coincides with important back-to-school shipping periods and could further exacerbate the inventory surplus situation,” Cowen CFA John Kernan said.

Any dislocation in merchandise flow could put added pressure on sales and margin ahead of what was supposed to be a “resurgent” second half,” Cowen said.

“Potential disruption from the new SOLAS rule will require some retailers to execute contingency plans, including pulling forward receipts, and shifting from ocean freight to more expensive airfreight to ensure products arrive at stores on time,” Oliver Chen, Cowen CFA, added.

And who looks to be most vulnerable to the shipping changes? Specialty retailers, according to Cowen—namely Abercrombie & Fitch, American Eagle Outfitters, Gap, Lululemon and tween retailer Justice. Vendor lags could hurt stock at Macy’s, J.C. Penney, Kohl’s, Target and Walmart.

On the other hand, the delayed shipments and resulting inventory dislocation might be a win for off-pricers T.J. Maxx and Ross.

“Compared to the 2015 West Coast port issues, we anticipate fewer headwinds from this potential disruption with transit delays likely to last for a month, less than the two to three month delay from last year’s West Coast port slowdown,” Chen said.