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Some Retailers Pay Big Bucks So Goods Ship First

Industry watchers are concerned about a fresh wave of supply chain bottlenecks stemming from the Shanghai lockdown and expected production ramp-up once the city home to China’s biggest port reopens.

Though ocean freight rates have dipped a bit in recent weeks, they’re still significantly higher than what companies paid prior to the pandemic. One CEO, who asked to remain anonymous as his company sells sportswear to mid-tier department stores, said freight fees are “stable right now.”

“I don’t see them rising, but I don’t see them dropping,” he said. “We have a weekly chart that tells us where things are.”

Gelmart International CEO Yossi Nasser similarly doesn’t see rates falling off much in the near future. “Freight costs have somewhat stabilized, but they haven’t gone down as much as they’ve gone up over the last year, year-and-a-half,” said Nasser, who runs the world’s largest intimate apparel manufacturer with clients including Walmart, Target and JCPenney.

Last year some retailers paid a premium to leapfrog their goods to the front of the line and ensure their merchandise got priority treatment to arrive on store shelves and in warehouses in time for critical shopping seasons, he said.

“We definitely heard that, with the scarcity that was happening compared to the demand in the [retail] environment,” Nasser said. “Obviously, it’s a different story today.”

Some were still shelling out top dollar as 2022 got underway, according to Dana Telsey, chief investment officer of Telsey Advisory Group (TAG).

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“I think certainly as the headwinds and the delays continue to occur and are being extended, and the fact that reopening and events and gatherings are beginning,” retailers need “newness and product,” she said. “I’m definitely hearing that being in stock on fashion merchandise is key to having a successful spring and summer season.”

Deep-pocketed retailers are in the best position to adjust to the turbulent times, though others have responded by moving receipt deadlines earlier on the production calendar to account for potential delays,

“It’s across the board, it’s really across retail,” said Joseph Feldman, a retail analyst at TAG. Firms with strong balance sheets “will be able to charter vessels on their own and to maybe pay up occasionally,” he added in a veiled reference to companies such as Home Depot, Costco, Walmart, Target and Ikea that famously secured their own ships to get control of chaos on the seas. Costco now has “seven ocean vessels,” up from three initially, for the next three years, with each ship ferrying 800 to 1,000 leased containers a pop.

Demand is sliding in other areas too. Data from Bank of America (BofA) Securities’ Truckload Demand Indicator published Friday shows that trucker demand has fallen to 58.0 percent from 64.1 two weeks prior, below its all-time average of 62. The drop marks the fourth consecutive decline and the lowest level since June 2020. The softening demand reflects delays in rail service, a rise in truck capacity and falling truck rates. The Indicator is down 23 percent from a year ago, and 10 percent sequentially. Rail carloads shrank 4 percent year-over-year, and have been negative in 28 of the past 33 weeks, according to the Indicator.

Shippers’ short-term positive outlooks fell to 39 percent from 50 percent last survey, neutral outlooks jumped to 43 percent from 39 percent, while negative outlooks were 18 percent from 11 percent. For the week of April 21, we surveyed 44 shippers across the U.S. to get current views on freight demand and supply,” the report said. 

There’s now more domestic trucking capacity while prices are on the way down. BofA’s Truck Capacity Indicator rose to 60.2 from 58.7, while the Rate Indicator collapsed to 39.8 from 58.7 in the last survey for the lowest level since May 2020. Container spot rates are sliding as well.

What happens next will depend on “when China re-opens and freight flows in mass quantities,” the BofA report said.