Date: Wednesday, October 12th, 2022
Source: Furniture Today
Supply and logistical issues that kickstarted over the pandemic may be improving, but they remain a heavy burden for furniture manufacturers and suppliers.
The furniture industry, like many others, boomed over the pandemic. Stuck at home, people wanted to buy things. Demand soared.
And now, just as many of these issues were beginning to see a bit of improvement, inflation hit. People pulled back on spending, and they pulled back hard. Retailers found themselves in a tsunami of inventory, with many desperate to get rid of it as soon as possible.
“Everyone ordered at pandemic levels, and all of this inventory came in, and now there’s nowhere to put it,” he said. “Hence, my business is booming. A 500,000-square-foot facility of ours just went online. We took in people’s overflow of containers so they weren’t paying astronomical rates in demurrage charges.”
“I would say the biggest challenge lately has been a lot of furniture retailers are full of inventory, forcing us to delay shipments so they can open up enough space for new deliveries,” said Aaron Nussbaum, the company’s director of logistics operations. Nussbaum said the company is working on a new 105,000-square-foot warehouse to help accommodate.
Fuel and freight
Other logistical concerns right now include high fuel prices, high ocean container rates, a lack of truck drivers and the rising prices of materials.
“Our biggest challenge is still direct container freight to the inner Midwest,” said Doug Rozenboom, president of A.R.T. Furniture. “Overland trucking is still expensive with high fuel costs. Our to-the-door costs are quite high.”
Ocean freight rates soared to astronomical levels over the past year and a half. They’re finally coming down but remain much higher than what they were historically.
Every furniture importer is in a unique situation, each dependent on factors like what country they’re importing from, what ports they’re using and, probably most importantly, if they’re using spot rates or contract rates.
Rates remain significantly elevated for Hooker Furnishings.
“Yes, container prices have fallen,” said Mike Harris, president of case goods. “There are no more $25,000 containers. But we still haven’t seen spot rates go below contract, which are still three times higher than what they were in 2021. That, coupled with congestion, is keeping freight a significant cost factor in prices today.
“Not everyone negotiates contract space,” he said. “Some people just play the spot markets. They don’t want to be committed to price. Hooker hasn’t done that. We like the stability of contract; it’s safer. But it’s true that people’s rates might be down if they do spot rates only. Everyone has a unique position.”
Dealing with delay
Domestic furniture manufacturers Gat Creek and Century Furniture don’t have to worry about ocean freight as much as some manufacturers do, but they have their own issues.
“LTL trucking from factory to retailer is still slow and increasing in expense,” said Gat Caperton, CEO of West Virginia-based furniture manufacturer Gat Creek. “The delays (shipment times from factory to retailer) were running four to six weeks at the height of the problem. They are still three to four weeks these days.”
Material availability seems to be in a similar situation.
“We only buy a few tiny components from China (mostly decorative hardware that we purchase from U.S. business that offshored their production 25 years ago),” Caperton said. “Because they are low dollar and high volume, we have simply carried more inventory to avoid outages. We buy more components from Germany, and Germany has struggled through the pandemic and now with the energy inflation and shortage. So, our greatest material challenge is Germany, and it’s significant.”
Caperton expects to regain equilibrium in material supply by the end of the year, but he believes cost inflation will continue into 2023.
Century Furniture CEO Alex Shuford III cited trucking as the company’s chief logistical issue.
“Domestic trucking seems to be a persistent issue driven in large part by the lack of qualified drivers,” he said. “I expect supply availability and pricing stability to improve over the coming quarter or two and return to near ‘pre-pandemic’ states.”
Shuford said the company altered its supply strategy to lean more heavily on providers the company has strong relationships with.
Material prices are also growing, said Shuford.
“We’re dealing with the price creep for select materials,” he said. “But overall, things are significantly better than the fall of 2021 and early spring of 2022.”
Virginia manufacturer Vaughan-Bassett was perhaps the most positive, citing material prices as the only real issue.
“Having a short supply chain means life is good,” said president Doug Bassett. “We’re able to get our components, and we haven’t had to slow down. Carriers have been slow to deliver for about a year and a half. But many are reporting they are catching up fast.
“Lumber prices seem to have peaked,” he said. “The costs that continue to go up are labor and healthcare, as well as energy. With business slowing, we’re not trying to hire. The pressure on the labor market has eased.”
Supply issues are also improving for high-end resource Phillips Collection, but the situation remains turbulent.
“While container and gas prices have improved over the past few months, the future remains uncertain as things move so quickly now in either direction that we are all hesitant to make any dramatic changes to our operations,” said Jason Phillips, vice president of sales.
“We have absorbed so many costs during the pandemic that it is difficult for consumers to understand why the price of furniture has not followed the same downward trend as other goods,” he added. “Furniture is very freight intensive, so while we remain optimistic that things are improving, we have to be cautious not to just assume we’re past all of the challenges the pandemic presented.”
Since the pandemic began, Phillips said the company’s strategy has been to focus on having inventory on hand. Now, it’s placing a greater emphasis on flexibility.
“We know how important inventory is, now more than ever,” he said. “We made a decision early into the pandemic to be a resource to our customers by having inventory. So in that sense, we are aggressive in how we manage our forecasting.
“We also found that customers were willing to pivot to similar items, which is where technology steps in,” Phillips continued. “We have leaned on our IT team to make sure we have the tools at our fingertips to push forward alternatives that make sense when we do run into inventory shortages.”
Despite things improving for mid-priced case goods importer Legacy Classic|Modern, the company expects logistics to be its main investment for the coming year.
“Logistics and warehousing will probably be our main investment for the coming year,” said CEO Neill Robinson. “We want to optimize our new North Carolina facility. That means equipment, labor, training, etc. We will ramp up our logistics. We will make sure we have high-quality, clean packages.”
Expect the unexpected
Logistics software provider DispatchTrack believes “unpredictability” is the best word to describe the furniture industry the past couple of years.
“In our experience, predictability was key in this industry,” said co-founder and COO Shailu Satish. “Prior to the pandemic, retailers knew exactly which products were going to be in high demand during each season, and they were prepared.
“Now, retailers are forced to deal with unpredictability as it was difficult to gauge when demand would increase or decrease,” she said. “Brands were unprepared to deal with the increase in sales as consumers remodeled, but the supply chain issues made it difficult to fulfill customer demand on time. Brands are still adapting to the new norm and are navigating how to deal with rising prices and a reduction in demand now that supply is up.”
But all three logistics companies in this report were in alignment on what the main issue affecting the logistics industry is. And it isn’t a new one: It’s the lack of labor.
“Employee shortages are everywhere,” said Massood. “There’s always been a challenge to get drivers. Not everyone can get behind the wheel of a truck.
“But the labor issue is more than just drivers. It’s also warehouse workers. That’s been a big challenge. We could bring it a whole lot more product if we had more manpower.”
Massood and Nussbaum also highlighted that labor is needed even more so in the furniture industry. It’s needed at all phases, from loading at factories to unloading at retail stores and home delivery.
“Some manufacturers aren’t staffed to help our drivers load oversized heavier pieces,” said Nussbaum. “The trucking industry runs off of tight margins so being able to fit as much furniture (high and tight) on a trailer is essential to the financial success of a trucking company.”