8 minute read
Food for thought: Freight debate
Housewares is among the many industries that are being hit by soaring shipping costs and delays on Asia-Europe shopping routes. PH features news and views on this global challenge from several leading suppliers and a retailer. What’s the impact and what can be done in mitigation?
Inset: Freight ship photo by Martin Damboldt.
debate Freight
Loading and unloading delays
Eddingtons’ commercial director
Richard Walker reports: “These are very challenging times with regards to freight and supply. Many Chinese factories are struggling to obtain adequate raw materials and have been overwhelmed with demand as they come out of lockdown. Sometimes they are working with Covid restricted work practices or have been unable to redeploy their workers which in turn impacts output. We will have all seen in the press the recent Suez Canal blockage; we had containers on the vessel the Ever Given but we were fortunate to have had adequate stock to cover the delay caused by the container. However, this helps illustrate the current challenges. The more recent temporary closure of Yantian port, the largest loading point in China, has compounded existing local Covid-related delays meaning this has simply added to a backlog in the region. In early July it was still only operating at 85% capacity. We’ve seen record levels on container prices in July, with forwarders competing for limited space with the shipping lines which remain swamped with demand. Vessels are ‘cutting and running’ from UK ports too where unloading delays mean it is not always viable for ships to wait for the backlog of unloading to clear – they head to dock at Rotterdam or Hamburg with containers rolling back over to the UK by road at additional cost to us. UK port clearance and unloading delays are also contributing to demurrage charges on stock we desperately need. This is, of course, not just affecting our sector, and I’m sure will lead to inflationary rises throughout the economy. There is no sign of rates abating this year. Eddingtons has been managing the unprecedented manufacturing costs by making shipments as efficiently as possible - often increasing quantities to fully utilise containers. We are blessed with a high geographical spread of brand partners and factory production sites, so we are not totally governed by what is happening in China. We source many products from Europe, which travel to us by road with shorter lead times and many of our brand principles are in the US where freight rates have been less badly impacted.”
Freight exceeds product cost
Steve Galbraith, group buying and supply chain director, RKW
acknowledges: “Market data indicated that after Chinese New Year shipping costs would slowly reduce back to pre-Covid levels. However, rates from China to the UK are now almost 10 times the normal ocean freight vs the same period in 2020. This has significantly increased the cost of products in general and, in many cases, the cost of freight per unit is now greater than the cost of the product. Our team continues to work closely with our longstanding factory partners and forwarders to minimise the increases, but we (as an industry) need to recognise that the main price driven influences are out of our control. Research shows consumers are willing to pay more when both the brand and product meet or exceeds their expectations. Offering consumers exceptional quality, aspirational products at unbeatable value stands at the heart of everything we do. By focusing on this ethos, we have continued to re-invest back into our business by increasing the amount of new product development so consumers are presented with new, innovative, and design led products that delight and inspire.”
Left: The cost of containers has rocketed.
Retailers have understood the challenge
Paul Spencer, managing director of barware expert Original Products (Jeray
Sales) states: “I concur this is the worst period ever for sea freight. The extortionate costs make a mockery of the so-called fairer move from conference (ie an association of several shipping companies where members may agree on price fixing and market share) to non-conference. A cartel still exists and the profiteering by the shipping lines is verging on the extreme. It has been really gratifying that our retailers in the UK and across Europe have understood the situation and been patient, adapting their requirements accordingly. Fortunately, we planned well in advance, and so have our customers, and that will continue into 2022 because there is no imminent change. Real inflation will clearly hit 5% as it has in the States, but demand will remain strong.”
Above: Paul Spencer with some of Jeray Sales’ classic barware products.
Right: Nick Glynne, ceo of Buy It Direct.
Partnership, planning, and prioritisation
Claire Budgen, commercial and marketing director at Lifetime Brands Europe
comments: “Housewares, like most consumer goods, is not immune from the current supply and demand issues driving increases in costs and their knock-on effect to both trade and consumer pricing. These issues show no sign of abating, and their sustained impacts cannot be ignored or avoided. Three factors have come together: extended production lead times, increased product costs and shortfalls in freight capacities creating the "perfect storm". There are also three factors that are key to riding this "storm": partnership, planning and prioritisation. We’re working closely in partnership with key supply chain partners to secure both product manufacturing and freight capacities.
We are planning meticulously to be in-stock of the right products, managing both availability and cash flow in detail. As we continued to trade throughout the pandemic, we were initially caught out by the upsurge in demand for some of our product categories - bakeware and storage to name a few. We then invested heavily and continue to do so. We have great availability with, for example, over 1.5 million more units on just our key sellers than this time last year, but the increased cost of freight is a complete anomaly to our pricing structure. We've been working extensively with our freight forwarders who have been fantastic in all fairness. From an information flow, freight planning and availability point of view, I think we have fared exceptionally well including securing capacity on chartered vessels. The element of pricing though is seemingly uncontrollable. Newness and innovation are vital, and they must be combined with a proposition that offers true choice, so we’re completely focused on driving Inset: Claire Budgen of this through.” Lifetime Brands Europe.
Nick Glynne, ceo of the online retailer Buy It Direct Group - which includes the large and small domestic appliance ecommerce site Appliances Direct and three stores stocking SDAs - is calling for an investigation by the Competition and Markets Authority into the ‘cartel’ run among international freight lines. He reports:
“Demand for consumer goods has soared over the past 18 months with people unable to spend their money on travel and other activities, yet there has been a growing shortage of containers and shipping availability in that time.
The self-perpetuating cycle has gotten out of control. Factories in China and the Far East don’t have any warehousing capacity, meaning they only produce what they can ship immediately. This, coupled with the reduced capacity in containers and ships, which are controlled by a small handful of global freight companies, has increased the cost of a container from circa £1,800 pre-Covid to more than £12,600 now.
Consequently, the freight cost, a key part of a product’s overall price, has increased enormously. For example, where the freight element for a single washing machine was £10 around 12 months ago, it is now more than £70 per item, cutting margins and pushing the price of products up for everyone in the supply chain, including the end consumer.
As a result, retailers in the UK are left needing to decide whether to continue importing goods and hoping they can sell them at this higher price or holding off and waiting for the shipping crisis to subside. Either way, this will mean that the prices of some large consumer goods will inevitably go up before the end of the year, while others will be increasingly hard to get hold of. It’s hard to avoid reaching the conclusion that the international shipping companies at the centre of this have deliberately reduced capacity over the past 12 months to capitalise on the surge in demand. There are solutions available to the lines, but it is clearly more profitable for them to fuel the scarcity and make greater profits on their current fleet. A quick look at the big five shipping companies' share prices will tell you all you need to know about the problem and should be an urgent matter for the Competition and Markets Authority. Otherwise, we’ll be in a position for the foreseeable where goods are not being made and there’s no guarantee on when products will arrive. This is a problem for all retailers and other importers of large goods, and one that’s only going to get worse if it isn’t addressed.”
