Wayfair cites ocean shipping disruption, port congestion for in-stock issues

Date: Monday, March 1, 2021
Source: Supply Chain Dive

  • Wayfair is the latest company to cite port congestion disrupting its supply chain. Delays at ocean gateways are resulting in inventory challenges and some SKUs remaining out of stock, CFO Michael Fleisher said on the company's earnings call Thursday.
  • The retailer expects it could take a "few months" to get back to the in-stock levels it usually tries to maintain, Fleisher said.
  • "A lot of suppliers have items, finished goods that have already been produced and sitting in Asia that they've not been able to move, where factories are not able to produce goods because they're still storing other finished goods," he said. "Without the ocean freight congestion, maybe we'd be getting back to those in-stock levels in the next month or two."

Fulfilling consumers orders relies on a vast international supply chain that Wayfair said has slowed to a crawl as a result of the recent congestion. The retailer imported more than 40,000 TEUs in 2020 through its international supply chain and it has more than 16,000 suppliers helping to stock its inventory, according to slides from the company's earnings call.

Keeping stock levels up has been challenging as the pandemic drove consumer demand for home goods and e-commerce.

"As the pandemic drags on, online shopping behavior is becoming increasingly entrenched, and consumer demand for the home category remains elevated," CEO Niraj Shah said last week.

The company's revenue grew 55% YoY for the full year 2020. CNBC suggested that the company's Q4 results might suggest a slowdown in pandemic-driven demand for products. Wayfair's average order value dropped, but the company also increased the number of active users on its platform by nearly 54% YoY.

"At current levels of demand, we expect the industry to reach more normalized inventory levels by the summer of this year," said ​Steve Conine, Wayfair co-chairman and co-founder.

He said ocean carriers are increasing capacity but noted that it hasn't been enough to deal with the company's current backlog.

"There's also well-documented pressure and lack of availability on ocean freight which is amplifying the backlog of orders flowing to North America and Europe," Conine said.

But Wayfair's unique control over its end-to-end supply chain, along with its high TEU volume, does provide it some negotiating power when its comes to dealing with ocean carriers, Shah said, referring to the company's brokerage arm, International Supply Chain. Wayfair expects a potential 50% to 100% increase in TEU volume in the coming year, and ocean carriers have been willing to work with them and provided price stability, he said.

"We have been able to continue to secure capacity, and the pricing we have is far below the current spot market," Shah said. "And our suppliers who are then using that offering are benefiting because they have had that price stability, and they can continue to move goods."

Wayfair is not alone in dealing with a surge of imports that has resulted in increased container dwell, longer turn times and a line of ships waiting to berth, notably at the ports of Los Angeles and Long Beach.

At a conference last week, a Crocs supply chain executive said the company is prioritizing redundancy in its freight contracts this year as tight carrier capacity disrupted its supply chain

"If there's one thing I would say about the supply chain is there has been and continues to be port congestion like you've seen across retail that is causing product delays in certain areas," Ross Stores' Chief Operating Officer Michael Hartshorn said on the company's earnings call in November.

There might not be any quick change to the situation, either, as the retail industry expects to see record levels of imports through the first half of 2021.


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