Date: Tuesday, October 12, 2021
Source: The Wall Street Journal
Global supply-chain delays are so severe that some of the biggest U.S. retailers have resorted to an extreme—and expensive—tactic to try to stock shelves this holiday season: They are chartering their own cargo ships to import goods.
Port delays, Covid-19 outbreaks and worker shortages have snarled the flow of products between Asia and North America, threatening the supplies of everything from holiday decorations and toys to appliances and furniture. It is taking roughly 80 days to transport goods across the Pacific, or twice as long as before the pandemic, retail and shipping executives said.
Walmart Inc., WMT +0.09% Home Depot Inc., HD +0.96% Costco COST +0.18% Wholesale Corp. and Target Corp. TGT +0.54% —some of the biggest U.S. retailers by revenue—are among the companies that are paying for their own chartered ships as part of wider plans to mitigate the disruptions, a costly and unattainable option for most companies. Some of the chains are passing along these added costs by raising prices for shoppers.
The chartered ships are smaller than those that companies like Maersk operate and move just a small slice of total imports, the executives said. Ships that can hold around 1,000 containers are on average nearly twice as expensive as the cost of moving cargo on a typical 20,000-container vessel, according to freight forwarders.
But the charters provide the big retailers with a way to work around bottlenecks at ports such as Los Angeles, by rerouting cargo to less congested docks such as Portland, Ore., Oakland, Calif., or the East Coast. It also could help retailers ensure that key products such as electronics and décor arrive for the holiday season.
Shipbrokers said small vessels chartered for point-to-point voyages now earn around $140,000 a day, multiple times more than levels before the pandemic, when such sailings were rare because of the high cost. “They at least know that the inventory will arrive in time for the Christmas rush,” said Vicky Zervou, a sales manager at Athens-based freight forwarder Aritrans SA.
In May, Home Depot executives were looking for new ways to bring in goods in a timely fashion when they struck on the idea of chartering their own ship, something the company had never before done. “It was almost started I think as a joke,” said Sarah Galica, vice president of transportation at Home Depot. “Let’s just charter a ship.”
Products coming in on chartered ships make up a small percentage of Home Depot’s overall import volume, she said, but the shift allows the company to have more control over when products arrive in stores and give priority to the most in-demand products. For Home Depot, the charters are moving plumbing supplies, power tools, holiday décor, heaters and other items.
Richard Galanti, Costco’s COST 0.20% chief financial officer, said the retailer has chartered three ships, each capable of carrying around 1,000 containers, to bring goods between Asia and North America. Each vessel will be making up to 10 deliveries for Costco over the next year. Those ships will account for under 20% of the warehouse retailer’s import volume from Asia next year, he said.
The charters are more expensive than shipping through Costco’s typical carriers, Mr. Galanti said, but give “us some amount of our total that we control.” For example, he said it provides the ability to bring a ship to a new port if it faces port congestion and can’t unload its wares. Costco also wants to give priority to seasonal merchandise that has to sell at a specific time of year, he said.
Walmart, the country’s largest retailer with more than $500 billion in annual revenue, has chartered its own ships before this year, having used the strategy during the Los Angeles port strikes in 2012.
The ships give Walmart visibility on arrival times and freight pricing, a spokesman said. Because of port congestion in Los Angeles, Houston and Savannah, Ga., some chartered ships are being rerouted to smaller, less busy ports, such as Mobile, Ala., the spokesman said. In recent weeks, Walmart also sent its own employees to the congested ports to help facilitate landings, he said.
Chartering ships is a tactic that is out of financial reach for small retailers, giving large companies a potential advantage in the coming months.
Podzly LLC, a small Papillion, Neb., party-supply retailer that sells online, has about half the inventory it would like because of shipping delays, eating into revenue, said founder Jeremy Podliska. The company is paying about 55% more for products it does receive compared with 2019, he said, often broken into small quantities that arrive piecemeal. Chartering a dedicated ship or airplane is “just not an option for us” as a small company, Mr. Podliska said.
Two years ago the company sold a 12-pack of sombrero party hats for around $32, Mr. Podliska said. Today, the same pack is sold for $52, he said, and the price will likely go up more as he sells through new inventory that arrives with higher shipping costs. He hopes shoppers will stomach the increases, he said.
“My guess is there is some limit to how much you can charge for a sombrero,” he said.
Meanwhile, delays at major U.S. ports continue to escalate. More than 60 boxships were waiting to pull into the ports of Los Angeles and Long Beach recently, according to the Marine Exchange of Southern California, up from around 25 a month earlier. Backups are spreading to East Coast ports as well.
At Dollar Tree Inc., regular shipping carriers are fulfilling around 60% of their contracted commitments with the discount retailer, Chief Executive Michael Witynski said in September.
The 16,000-store company is securing dedicated space on chartered vessels for the first time, Mr. Witynski said, including one large vessel contracted for three years. Dollar Tree aims to add more charters this year, he said, as well as source more products domestically and internationally that don’t rely on trans-Pacific routes. It also is adding higher-priced products to its stores, as transport and other costs rise.
Freight forwarders said Covid-19 disruptions still haunt the big ports and the big ships that use them. They said it is common for a big boxship carrying empty containers from Europe to be held for a week outside Shanghai, while the crew is tested for the virus.
Capital Maritime Group, which operates 108 vessels of all types, had a client charter a 2,000-container ship to move furniture and sports clothing from China to Liverpool, England, said Evangelos Marinakis, the Athens-based company’s chairman.
“‘Using small boxships for transoceanic point-to-point sailings is something we’ve never seen before,” Mr. Marinakis said, adding that small boxships offer strong profits to the company. In addition to retailers, large companies that supply stores, like Coca-Cola Co. , are also chartering boats to get around disruptions.
Moving a container across the Pacific on a chartered ship costs nearly twice as much as shipping via major cargo liners, which stood at $16,750 per 40-foot container last week, up from about $5,000 at the same time last year, according to the Freightos Baltic Index.
Freight rates remain elevated “but they have leveled off and we don’t expect another spike,” said Jonathan Roach, a container shipping analyst at London-based Braemar ACM Shipbroking. “The supply chains are still rattled, but come next year, it may not make sense for the Targets and Dollar Trees to keep using private charters.”