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Monday, March 27, 2023

Why shipping snarl will be costly for merchants, holiday shoppers

Nektar Petroff got used to waiting.

As the owner of Most Fun Toys, an online business based in North Hollywood, she is in the midst of ordering merchandise for the busy holiday season. But she’s waiting a week or two — and sometimes more — to receive her goods. Their stressors include shipping costs, which Petroff says are often two to three times the value of the goods they order.

“I ordered 24 dollhouses and paid about $120 for them, but shipping cost me $300,” said Petroff, who also gives many of his toys to children in need. “Before, shipping would have been closer to $200.”

As the holidays draw closer and supply chains shut down, local retailers big and small are scrambling to get holiday items on their shelves.

Nectar Petroff, owner of Most Fun Toys based in North Hollywood, has seen the shipping cost of her toy orders increase by about 33%. (Courtesy of Funniest Toys)

A shortage of back-up and warehouse workers and truck drivers at Southern California ports will make it a tall order for merchants. So what are they doing to blitz the shopping?

Getting very agile.

John Gould, vice president of supply chain and customs policy for the National Retail Federation, said companies are mitigating risks by making rapid, frequent pivots.

Read more: How 20 workers keep cargo ships from crashing off Southern California

“They are bringing in products earlier than usual, shifting to different ports when needed, using air-freight delivery instead of cargo ships, and in some cases, their own cargo ships,” he said. Hiring it,” he said.

According to S&P Global Platts, the price of containers from China to the US West Coast has reached near record highs, with contract rates up 25% to 50% from a year ago.

change game strategy

Target is one of the big retailers finding new ways around the bulky supply chain.

The company is ordering larger shipments ahead of the holidays, even leasing its own container ship.

“As co-managers of the ship, we can avoid delays by additional stops and stay away from specially supported ports,” the company said last week.

Why Shipping Snarl Will Be Costly For Merchants, Holiday Shoppers
Sixty container ships were waiting to unload their cargo from the ports of Los Angeles and Long Beach on Wednesday, October 6. (Photo by Jeff Gritchen, Orange County Register/SCNG)

That traffic jam is running at the twin ports of Southern California, which have been closed for months.

“As of this morning, there are 60 container ships waiting to go into the two ports,” Port of Los Angeles spokesman Philip Sanfield said on Wednesday. “Twenty-five people are headed to LA and 35 are headed to Long Beach.”

related: Christmas at risk as supply chain ‘disaster’ only gets worse

It is estimated that about half a million shipping containers are waiting to be unloaded outside ports, and Sanfield said ships are waiting about 10 days to unload their cargo.

Some wait has been too long.

Chatsworth-based MGA Entertainment, one of the nation’s largest toys, said it had more than 600 containers full of toys that had been stuck in the port of Los Angeles waiting to be unloaded for six weeks.

domino effect

The gridlock stems from the temporary closure of factories, warehouses and other major facilities during the COVID-19 pandemic. Many workers moved to other jobs, while others are set to return to work amid the delta version.

The shortage has created a supply-chain backup amid rising consumer demand and a growing e-commerce shopping environment over the holidays. Retailers across the brick-and-mortar and e-commerce spectrum are struggling to stay afloat.

Walmart, like Target, is renting its own cargo ships, while also looking to avoid overcrowded ports.

“We hired more than 3,000 drivers this year, with more in the pipeline,” the company said in recent days. “We are employing 20,000 permanent supply chain positions to help move products through our facilities as quickly as possible.”

The company has grown its inventory of electronics with a focus on TVs, laptops and video games in preparation for the holidays.

Bert Flickinger III, managing director of retail consulting firm Strategic Resource Group, said Amazon, Walmart, Target and Costco have a leg in the holiday arms race because they are able to rent their own cargo ships.

“They also save money by pre-booking the ships,” he said. “They will pay $5,000 to $6,000 per container, but other companies that contract cargo ships on the spot market may pay $20,000 per container.”

Why Shipping Snarl Will Be Costly For Merchants, Holiday Shoppers
Walmart, like Target, is renting its own cargo ships to deliver goods to the store. The retailer has expanded its inventory of electronics, focusing on TVs, laptops and video games, in preparation for the holidays. (Photo by David Crane, Los Angeles Daily News/SCNG)

sticker shock in stores

Consumers will also face sticker shock this holiday season, especially when looking for items like T-shirts and jeans.

The price of cotton has increased by 22% in the last two weeks due to drought and affected production. Overall apparel prices increased 4.2% during the 12 months ended August.

But prices aside, many consumers will likely be struggling to find items on Amazon’s list of the hottest toys for the 2021 holiday season. These include the Big Dig Working Excavator with Wheels ($55), Star Wars Snakin’ Grogu ($79) and Hot Wheels City Ultimate Octo Care Wash ($80).

While toys are perennial holiday favorites, getting them off the shelves without long delays and high delivery costs is a different matter.

Basic Fun, a Florida-based toy company, opted to leave a third of its iconic Tonka Mighty dump trucks for US store shelves in China.

Basic Fun attributed the move to the rising cost of shipping containers and clogs in the supply network, as well as increased transportation costs. The cost to get the products into the US is now 40% of the retail price, or about $26.

That’s up 7% from a year ago, and doesn’t include the cost of getting the product from US ports to retailers.

no thorns for you

The logistics standoff is also affecting the food industry.

Art Solis, who co-owns 3.99 Pizza Company with locations in Covina, West Covina, and Montclair, says he’s struggling to get some of the basic products he needs.

“We’ve actually had to tell some customers that we don’t have forks,” he said. “At one point, I went to every smart and final in here and none of them had thorns. We’re having the same problem with straws. “

Solis is also scrambling to keep enough pizza boxes on hand.

“A lot of them come from China and right now they are stuck at ports,” he said. “We’re also short on hot wings. They come from Tyson, but they can’t get enough staff to cut them and they don’t have enough truck drivers.”

According to Steve Azerbad, co-founder and chief investment officer of hedge fund Magellan Capital, in some cases, retailers have resorted to buying goods made years ago to ensure they secure at least some inventory. Can you

In normal times, these items would be liquidated in closed shops or overseas markets, but not now.

“Retailers are having a really tough time filling their shelves,” Azarabad said. “I talk to a lot of suppliers, and they keep telling me ‘I can’t fill all the orders I’m getting.’ “

Why Shipping Snarl Will Be Costly For Merchants, Holiday Shoppers
Port of Los Angeles executive director Jean Cerocca said the facility has increased its operating hours and added another 1,000 workers in an effort to keep pace with the huge influx of goods ahead of the holidays. (File photo by Brittany Murray, Press-Telegram/SCNG)

Accelerate Cargo LA

With a pilot program and potential federal infrastructure funding the port’s mess could improve.

Jean Cerocca, executive director of the Port of Los Angeles, said the facility has increased its operating hours and added another 1,000 workers in an effort to keep pace with the huge influx of goods.

“We’re having a hard time absorbing all of this cargo into the US supply chain,” Serocca said in a recent interview with CNN Live. “And the American importer has been sitting in port on that cargo longer than ever.”

The port launched the pilot program Accelerate Cargo LA, which was designed to ensure that gate availability meets cargo demands. It also calls on marine terminal operators to encourage the use of all available gate hours – particularly night gates – to reduce congestion.

Seroca is also seeking federal support through the country’s pending $1.2 trillion infrastructure bill.

“This is what a 10-year low investment looks like, and we need to move forward,” he said.

Importers began bringing seasonal cargo in June, Serocca said, about two months ahead of schedule, to ensure they could get products to stores on time. Despite the challenges, he is hopeful.

“I think we have a very good chance of making sure that the inventory levels are appropriate,” he said.

But there is no guarantee.

“The emphasis is on end-to-end logistics systems,” said Gold with the National Retail Federation. “There is no one silver bullet that will fix everything.”

Gold said smaller retailers are finding it difficult to obtain their products because they are less agile than larger players. Still, he expects buyers to be wiser.

“Retailers are doing a good job of explaining what’s going on,” he said. “The best advice I can give customers is to shop early. If there’s a hot item you want, make sure you get it early in the season.”

The Associated Press and Bloomberg contributed to this report.

World Nation News Desk
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