Jason Starr felt the first flashbacks of pandemic PTSD back in mid-April. As the vice president of operations at Montreal-based Globe Electric, he heard something he hadn’t in 18 months: Bookings on cargo ships from Asia were getting tight. Within weeks, spot container rates surged the most since 2022, and customers were demanding lighting products sooner than ever before the peak sales season in the fourth quarter, reports Ajot.
Historic disruption
The historic disruption of $25 trillion in global goods trade that culminated two years ago left deep economic scars of inflation and paranoia about shortages. But it also created buffers at companies like Globe Electric: procurement teams are now more flexible with a new reliance on technology and data tools to guide their decisions.
So far, merchandise trade is withstanding its first post-pandemic shock, with no noticeable flareup of global consumer prices. But that’s not guaranteed to last if snarls prove long-lasting or begin to bog down land-based logistics.
For central banks around the world that have begun or are preparing reductions to interest rates, any resurgence of consumer-price inflation would pose a major challenge. What could help policymakers is the maritime industry’s stepped-up efforts to address imbalances.
The fragility of global trade has been highlighted by six months of attacks on vessels in the Red Sea that few experts predicted would last so long. While disruptions haven’t hit levels seen during the pandemic, importers warn that costs will eventually need to be passed along to their consumers, and the latest upheaval is another incentive to bring production closer to points of sale.
Pennsylvania-based office furniture wholesaler COE Distributing is among the companies feeling the hit. It had been using the Red Sea route to import around 50% of its products from its Asia-based manufacturers. “It is not impactful or visible to the majority of US consumers right now, but we are starting to see material cost impacts,” said J.D. Ewing, the company’s chief executive, who cautioned he may need to increase his charges to customers for next year. He also said the latest difficulties “certainly solidified” the case to bring production closer to home, though that will be a “long process.”
For other US companies, the exposure to shipping market cycles is more acute than ever.
Greg Davidson, co-founder and CEO of New York-based Lalo, a baby products company that ships a few hundred containers annually from Asia, says the highest he paid for a 40-foot cargo box was about $21,000 in 2022. Now, industry speculation is that rates are headed back to $20,000, he said. That would be a major markup from the $9,000 he recently paid.
Hints of such pricing pressures have already surfaced. US producer prices climbed slightly more than forecast in June. The latest crunch comes just as wholesalers and retailers in the US and Europe rush to stock up inventory ahead of the back-to-school and year-end holiday shopping seasons. Adding to the impetus: is the threat of higher US tariffs on Chinese imports.
Given their closer proximity to the Red Sea, European companies are feeling major effects. DFS Furniture Plc, a UK furniture retailer, issued a profit warning last month, citing disruptions in the Red Sea raised shipping costs and delayed deliveries. Alex Baldock, the CEO of Currys Plc, said in an analyst call last month that supply chain and service operation costs have “hit the gross margin line,” forcing the British electronics retailer to implement cost control measures.
AddLife AB, a life-sciences company based in Stockholm, said it’s working with suppliers on “significant” backlogs, CEO Fredrik Dalborg said on a conference call Monday. He added that buffer stocks are being built up in some cases.
Still, signs are emerging that the latest shipping crunch may be close to peaking. Port congestion in Singapore — a major transshipment hub for Asian cargo — looks to be easing, and spot container rates to the US from Asia tracked by Xeneta, an Oslo-based freight analytics platform, look to be plateauing.
At Globe Electric, which ships as many as 2,000 containers a year for customers across North America, Starr sounded cautiously optimistic about the short-term outlook. Freight rates should start to stabilize and possibly come down in September and October, he said. But “if this continues for another six to 12 months, then more conversations are going to have to be had” about raising prices, he said.
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Source: Ajot
