Fighting the price war / 80 Better late than never?

point. We filled our warehouse when China was shutting down in early 2020, leaving us sitting on massive amounts of stock for the entire length of the first Irish lockdown when furniture retail was closed up. Thankfully, this went a small part of the way to meet the demand when retail reopened – but, faced with rising shipping costs at the end of 2020, we reset our pricing structure for all new stock.

Throughout the first half of 2021, we kept our prices static for our customers even as shipping prices skyrocketed, reducing our margins. The record shipping prices have forced us to reset our pricing once again, as many of our industry peers have.

What are the options?

At the time of writing, the third largest port in the world, Yantian in China, is operating at less than full capacity due to a Covid outbreak. Ships are now left waiting to dock, tying up both the ship and precious equipment. Box recovery could take up to a month. Other ports

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are seeing congestion as a result of vessels omitting Yantian by choosing alternative routes.

The equipment issue is only getting worse, and we don’t expect it to stabilise this side of the new year. We are in for turbulent times in the medium term, and can expect the cost of goods to continue rising. As I said at the start, everyone in our industry is facing a choice – but do any of us really have a choice when it comes to stocking our storerooms and keeping our doors open?

FIGHTING THE PRICE WAR By ROBERT BIANCHI

With shipping prices continuing to go through the roof, industry veteran Robert Bianchi wonders if it’s time to explore new directions – without rocking the boat, of course …

After more than 30 years in the industry, I decided the time was right to leave the protective bubble of the family business in order to head out and explore some new (and hopefully exciting) opportunities. As an interested observer, rather than at the coalface, I have been closely following (with growing incredulity) the spiralling costs of shipping from the Far East. Coupled with extended lead times and successive Covid outbreaks, it’s proving to be a perfect storm for furniture retailers and wholesalers importing from Asia.

For many of us, as buyers the Far East represented the end of the rainbow – access to prices previously unheard of (along with improved quality and more aspirational designs) was the hook, and relatively cheap and easy logistics the icing on the cake.

This third part is now proving worrisome, and the speed at which the shipping prices are accelerating is astounding. Prices of $17,000 are regularly spoken about – if, of course, you can get a shipment date – whereas at this point last year the prices were at a steady $2000, with ready availability.

With the Christmas rush just around the corner, I believe the worst is yet to come – and that paying $20,000 for a box will not come as a surprise to many.

WITH THE CHRISTMAS RUSH JUST AROUND THE CORNER, I BELIEVE

THE WORST IS YET TO COME

So, what to do?

In a word, nothing. The prices – particularly for dining furniture – still outstrip what’s on offer in Europe, and restocking bestselling lines with other ranges sourced from different factories can bring other problems into play, particularly when you combine this with the ongoing travel restrictions due to Covid. It is the firm belief amongst the logistics industry that although the $2000 container of 2019/20 might be a long shot, the prices will soften going into 2022.

If it were me, I would be absorbing the increases, ensuring any price rises are kept to a minimum and, in so doing, keeping the supply chain moving. More importantly, I’d be working hard to ensure customers aren’t let down – trying to do anything new right now would effectively be shutting the stable door after the horse has bolted.

In addition, I’d be investing my time in looking at sourcing from new factories in Europe – in so doing ensuring that I wouldn’t be over-reliant on any particular region or country for importing my goods in the future …

BETTER LATE THAN NEVER?

It’s a given that the timely delivery of goods is important for the performance of many contracts. But do contracting parties ever give thought to the consequences of deliveries being delayed? According to Stephen Sidkin, this question is pertinent for many contracts – not least, agency and distributorship contracts – following the release last month of the Ever Given from the Suez Canal, where the Suez Canal Authority had held it (and its 18,000 containers, which held, among other things, products being supplied to IKEA) since March …

By STEPHEN SIDKIN www.foxwilliams.com

The contractual relationship between many suppliers and distributors will be formally documented. The contract should set out the terms on which the distributor will develop and service a particular market.

It should also set out the terms on which the supplier and distributor will sell and buy the goods which are the subject of the distributorship contract. Failure to do so will, at best, result in the supplier relying on the Sale of Goods Act. But the act does not: limit the seller’s liability for late or nondelivery of the goods; or provide for force majeure.

For the distributor, late or nondelivery of the goods invariably will place it in a difficult position. First, it has contracted to buy the goods so as to resell them to its customers. No goods, no resale, no profit! But by not supplying customers, the distributor may be in breach of contracts with these customers and exposed to damages claims.

Second, can the distributor look to the supplier to cover the distributor’s liability to its customers? Where the supplier-distributor relationship is poor, late or non-delivery of the contracted goods may give the distributor the opportunity to assert that the distributorship contract is at an end.

This may interest a distributor: faced with a declining market for the supplier’s goods; or wanting to exit from contractual commitments to purchase minimum quantities of goods from the supplier going forward; or where the law of the distributor’s country provides the distributor with mandatory rights to compensation on the ending of the distributorship contract.

Principals and agents Whilst the contractual relationship between many principals and agents will be formally documented, often there will be overarching legal protection given to the agent (in the UK by the Commercial Agents Regulations, and in the EU by the EU Agents Directive). Further afield, the protection of agents can be found in the laws of many countries in Africa, Asia, the Gulf and South America.

But, for protection to arise, the agency contract must be ended either by: the principal; or the agent, on the basis that such termination is justified by circumstances attributable to the principal.

In an Ever Given-type situation, the late or non-delivery of goods by the principal to a customer in respect of an order obtained by the agent is unlikely to justify the agent terminating the agency contract by circumstances attributable to the principal.

But late or non-delivery may find that the customer accepts delivery only if the price is reduced – or simply refuses delivery. In this situation, can the principal reduce the commission payable or pay no commission to the agent?

Contractual certainty is a good vaccine against conflict. So, hopefully the agency contract expressly allows the principal to reduce the commission in this situation. If not, where the principal has agreed to reduce the price payable by the customer, a disproportionate reduction in commission may entitle the agent to claim that the termination of the agency contract is justified by circumstances attributable to the principal.

Where termination of the contract occurs, the agent will usually claim: damages for failure to give proper notice; commission accrued but unpaid at the time of termination; commission in respect of orders received by the principal after termination, where those orders resulted from the agent’s activities before termination; and commission in respect of orders accepted but unfulfilled by the principal, where the principal is to blame.

But the fact that the principal was not paid by the customer does not void the principal’s liability to pay the agent commission!

Whether discussing agency or distributorship contracts, 200,000 tons is an Ever Given reason to consider the impact of late or non-delivery of goods