Supply-Chain Headaches Ease for Many Companies

Date: Wednesday, February 22, 2023
Source: Wall Street Journal

Supply-chain snarls are fading from among the top challenges facing some U.S. companies as freight congestion eases, shipping costs fall and factories in Asia are freed from Covid-19 lockdowns.

The benefits are being felt most among importers of finished goods, such as game company Hasbro Inc., Sharpie pen maker Newell Brands Inc. and sportswear manufacturer Under Armour Inc., whose executives on recent earnings calls pointed to the supply chain as a bright spot among darker clouds from rising interest rates and a pullback in consumer spending.

But some manufacturers still sound cautious as shortages of key parts hold up production lines and hurt productivity. Dave Regnery, chief executive of air-conditioning manufacturer Trane Technologies PLC, said on a Feb. 2 call that supply-chain issues had improved but it would take “several quarters before the supply chain gets back to what I would call normal.”

Retailers and manufacturers struggled for more than two years as Covid-19 shutdowns, labor shortages and bottlenecks at ports, rail yards and warehouses delayed freight and drove up shipping costs. Some importers paid more than $20,000 last year to ship a box by ocean from Asia to the U.S. West Coast, up from less than $2,000 before the pandemic.

The rising costs and lengthy transit times pushed some companies to cut back on slower-selling products and raise prices.

Today, freight congestion has cleared and ocean shipping costs have fallen close to prepandemic levels. The challenge for retailers is to maintain vigorous sales and to clear out bloated inventories.

Auto-parts retailer O’Reilly Automotive Inc. said on a call Feb. 9 that it is seeing relief with freight and transportation costs after two years of pressure.

Hasbro, which said in January that it would lay off about 1,000 workers amid declining sales, said supply-chain delays shouldn’t be as much of an issue this year as in 2022. The toy maker’s chief executive, Chris Cocks, said on an earnings call Thursday that the company last year pushed back two big game releases by two to six months because of such delays.

“We don’t feel like we’re going to have that issue again,” Mr. Cocks said. “We feel like we’re pretty well ahead of our supply-chain issues, and the capacity of our vendors is pretty good.”

Under Armour executives said on a Feb. 8 earnings call that inventory levels grew almost 50% between March and December last year. The athletic-apparel retailer’s chief financial officer, David Bergman, said gross margin was down 650 basis points, or 6.5 percentage points, in the most recent quarter, driven largely by higher promotions and discounting.

Mr. Bergman said the decline was “partially offset by 40 basis points of favorable supply-chain impact driven by lower freight costs, which more than offset product cost headwinds during the quarter.”

Some companies said they still have a way to go before supply-chain challenges are resolved.

Kraft Heinz Co. executives said they are having difficulty securing packaging materials for some products. Airbus SE and Boeing Co. continue to struggle with overstretched supply chains. And Ford Motor Co. Chief Executive Jim Farley told a virtual town hall on Feb. 9 that supply-chain problems were continuing to hamper the company’s progress.

Benno Dorer, interim president and chief executive of apparel maker VF Corp. , said on a Feb. 7 call that logistics and distribution challenges delayed deliveries to some wholesalers and online shoppers at the end of 2022. But he said he expects those challenges to ease this year.

“Lead times are improving as anticipated, which will lead to better on-time performance, and we’re seeing that with spring deliveries,” Mr. Dorer said.


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