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US Retailers See Millions In Lost Sales Due To Port Congestion, Shortage Of Containers

Overwhelmed U.S. ports, elevated freight costs and accidents that sent goods plunging to the bottom of the ocean are causing headaches for U.S. retailers already reeling from the pandemic. US Retailers See Millions In Lost Sales Due To Port Congestion, Shortage Of Containers

From appliance makers to shoe brands and fitness equipment manufacturers, corporations of all sizes are reporting logistics struggles, especially on trans-Pacific trade routes. Although they haven’t yet translated into widespread sticker shock for consumers, the ongoing shipping issues threaten to disrupt inventories if they persist much longer.

“I don’t think we’re meeting everybody’s expectations today — and frankly, we’re unlikely to. I doubt if anybody else is either importing products from Asia,” Crocs Inc. Chief Executive Officer Andrew Rees said on an earnings call this week. “Getting it through Long Beach and other ports, getting shipped to customers is really challenging right now. And that’s not an issue with production capacity; that’s just logistics.”

The supply strains, compounded by shortages of shipping containers, are starting to hit companies’ operations.

Nautilus Inc., which makes fitness machines like Bowflex, said on a call this week that logistic issues delayed the launch of some of its new connected treadmills. Shoe-maker Wolverine World Wide Inc. said $20 million in sales would shift from the first to the second quarter because of the backlogs. Steven Madden Ltd. said supply chain disruptions cut the footwear company’s first-quarter sales expectation by $30 million.

Retailers expect the problems to spill into the next quarter, though some say they think the worst is behind them.

Nautilus CFO Aina Konold said the company no longer needs to send purchase orders two or three quarters into the future.

“We have gone back to issuing them closer to normal lead times of several weeks,” she said.

Lowe’s Cos. CEO Marvin Ellison said in an interview appliances in particular are still having some challenges, but “we’ll have corrected it” over the next couple of months.

Lost Overboard

Outside of the usual shipping headaches, Tapestry Inc. brand Kate Spade had the misfortune of being involved in two separate cargo ship incidents where containers full of goods went overboard in rough seas. CEO Joanne Crevoiserat said earlier this month that the losses will impact the brand’s spring deliveries. Mike George, CEO of QVC and HSN owner Qurate Retail Inc., said he’s lost at least one big batch of vacuum cleaners to the ocean floor.

The logjams come as demand from American companies and consumers has remained strong enough to propel U.S. merchandise imports to a record-high in January, even as exports remained sluggish. That divergence led the gap between the two — the goods trade deficit — to increase again and stay close to a record-wide set in November.

All those inbound products are clogging the nation’s biggest ports, from Savannah, Georgia, on the East Coast to Los Angeles — the biggest gateway for trade with Asia. The number of container ships waiting to enter the neighboring ports of L.A. and Long Beach stood at 27 late Thursday, with an average wait of more than a week. Parked in San Francisco Bay were about a dozen container vessels waiting to berth at the Port of Oakland, according to satellite tracking.

Air And Sea

Economists at the nation’s central bank have taken note of the difficulties, and at least one doesn’t predict an end to them anytime soon. According to a paper published Friday by Julianne Dunn, an economic analyst at the Federal Reserve Bank of Cleveland, “it is likely that supply chain disruptions will continue to evolve for the foreseeable future.”

In the meantime, some companies are paying premiums to send goods by air, substituting products on shelves and trying to renegotiate arrangements with shippers. Steven Madden is shipping some goods by air but is “judicious” about the move, CEO Edward Rosenfeld said, because the cost of air freight is also up over 100% compared with a year ago.

There’s been little relief recently on ocean freight, either. The Drewry Hong Kong-Los Angeles container-rate benchmark of spot rates has held steady over the past six weeks, averaging just over $5,900 per 40-foot container — more than quadruple the level of a year ago.

“The planning ability is absolutely key,” Under Armour Inc. CEO Patrik Frisk said in an interview earlier this month. “Anything you try to do on the fly, so to speak, is going to cost you dearly as it relates to transportation.”

Updated: 8-13-2021

China’s Port Shutdown Raises Fears of Closures Worldwide

A Covid outbreak that has partially shut one of the world’s busiest container ports is heightening concerns that the rapid spread of the delta variant will lead to a repeat of last year’s shipping nightmares.

The Port of Los Angeles, which saw its volumes dip because of a June Covid outbreak at the Yantian port in China, is bracing for another potential decline because of the latest shutdown at the Ningbo-Zhoushan port in China, a spokesman said. Anton Posner, chief executive officer of supply-chain management company Mercury Resources, said that many companies chartering ships are already adding Covid contract clauses as insurance so they won’t have to pay for stranded ships.

It seemed as if things were just starting to calm down, “and we’re now into delta delays,” Emmanouil Xidias, partner at Ifchor North America LLC, said in a phone interview. “You’re going to have a secondary hit.”

The shutdown at Ningbo-Zhoushan is raising fears that ports around the world will soon face the same kind of outbreaks and Covid restrictions that slowed the flows of everything from perishable food to electronics last year as the pandemic took hold. Infections are threatening to spread at docks just as the world’s shipping system is already struggling to handle unprecedented demand with economies reopening and manufacturing picking up.

Ningbo-Zhoushan Port said in a statement late Thursday that all other terminals aside from Meishan have been operating normally. The port is actively negotiating with shipping companies, directing them to other terminals, and releasing information on a real-time data platform, it said.

To minimize the impact, it’s also adjusting the operating time of other terminals to make sure clients can clear their shipments. A spokesman for the port said there were no further updates when contacted Friday.

Company Reactions

Some ships that docked at the Meishan terminal before the closure are suspending cargo operations until the terminal re-opens, according to a notice sent by shipping line CMA CGM SA to shippers.

Other vessels which usually call at the Meishan terminal will stop at the Beilun terminal instead, according to a statement Thursday from A.P. Moller-Maersk A/S. One of the company’s ships will skip Ningbo next week, it said.

“We are working on contingency plans in order to mitigate the likely impact on our vessel schedules and cargo operations,” Orient Overseas Container Line, a subsidiary of Orient Overseas International Ltd. container subsidiary said via email.

Ningbo city is still considered a low risk virus area, according to the city’s health commission, although flights to and from the capital Beijing have been canceled.

Authorities in Ningbo said the port worker was fully vaccinated with an inactivated vaccine and had the second dose on March 17. The worker was asymptomatic as of Thursday afternoon. He was infected with the delta strain, genetic sequencing showed, and epidemiological investigation shows the worker had come into close contact with sailors of foreign cargo ships.

The Baltic Dry Index that serves as a global benchmark for bulk shipping prices is up more than 10% since a month ago as the delta variant began to spread rapidly. While there haven’t been significant effects on U.S. ports, the problems in China could hurt companies that rely on container exports from the nation.

Container prices also have soared, with the benchmark cost of shipping a container from Shanghai to Los Angeles up more than 220% over the past year to $10,322 this week.

China Partly Shuts World’s Third-Busiest Port, Risking Trade

China partly shut the world’s third-busiest container port after a worker became infected with Covid, threatening more damage to already fragile supply chains and global trade as a key shopping season nears.

All inbound and outbound container services at Meishan terminal in Ningbo-Zhoushan port were halted Wednesday until further notice due to a “system disruption,” according to a statement from the port. An employee tested positive for coronavirus, the eastern Chinese city’s government said.

The closed terminal accounts for about 25% of container cargo through the port, calculates security consultant GardaWorld, which said “the suspension could severely impact cargo handling and shipping.” Germany’s Hapag-Lloyd AG said there will be a delay in sailings.

This is the second recent shutdown of a Chinese port due to the coronavirus, after the closure of Yantian port in Shenzhen from late May for about a month. That led goods to back up in factories and storage yards and also likely lifted soaring freight rates, which are at record levels and a source of inflation.

The fear is that this new disruption will further strain shipping and supplies of goods, dampening growth and driving up prices. An extended shuttering at Ningbo could be especially painful for the world economy because seaborne trade usually rises toward the end of the year as companies ship Christmas and holiday products.

“There may be far-reaching downstream consequences going into Black Friday and holiday shopping seasons” and the next 24 hours will determine whether there is a large outbreak or not, said Josh Brazil, vice president of marketing at project44, a supply-chain intelligence firm. “One of the few givens in 2021 is endemic delays, and the fact that conditions can change almost overnight.”

In addition to the closed terminal, containers for shipment through the other terminals in the port will likely slow. The port will now only accept containers within two days of a ship’s estimated arrival time, according to a statement from shipping and logistics firm CMA CGM SA.

The biggest exports through Ningbo in the first half of this year were electronic goods, textiles and low and high-end manufactured goods, according to the city’s Customs Bureau. Top imports included crude oil, electronics, raw chemicals and agricultural products.

Speaking about the outbreak, Hugo De Stoop, CEO of oil shipper Euronav NV said “there will be an impact on China’s oil demand, but the length of the impact is unclear.”

For port outbreaks “the Chinese authorities are very very strict. When they find a case they will be very quick to shutdown, isolate the workers, isolate the coworkers who have had contact with that specific worker and then reopen as quickly as possible,” he told Bloomberg Television Thursday, adding that this strictness in dealing with outbreaks can disrupt markets.

All the close contacts of the infected worker have been identified and are in quarantine, according to Ningbo City’s statement. A port spokesman who declined to give his name said there was no new information when contacted Thursday.

The port was the third busiest globally in terms of container shipments in 2020 and the second busiest in China after Shanghai, according to maritime publication Lloyd’s List.

The discovery of the port worker that tested positive for Covid-19 shows that virus-prevention measures in Ningbo City still has loopholes, the local government said in a statement on its website Thursday, which urged officials to implement quarantines, disinfection and close affected areas to prevent the virus’ spread.

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