Competitor Advantage

I was reading a report about Home Depot leasing their own container vessel which they believe will give them a "competitor advantage". I know things have been bad on the logistical side of things over the last year with no real end in sight. It may sound a bit extreme, but they are not alone as others have also been guaranteeing their supply chain remains intact. Many of Europe's grocery retailers have been leasing vessels for the last year.

Just last year with the build up to Christmas Amazon booked slots on numerous container vessels but haven't gone as far as securing their own vessel as yet. Home Depot has had a logistical nightmare according to reports with many products out of stock leaving their stores fairly barren.

The problem is a world wide phenomenon currently as in the past orders would flow in like clock work. One of the most important roles in any big retail business is not the buyer, but the planner. The planners job is to guarantee product hits the shelves at the correct time in sufficient quantities.

Last year we saw the Black Swan event which was the world shortage of containers as they were all in the wrong places. If the world has product being exported all out of one region then this is going to be the result as containers don't just magically return. Vessels returning to China used to have 50% empties and 50% product onboard but now it is more like 80% empty. This will most certainly be added to the cost of shipping which are being reflected in what we are now experiencing.

The American congress this week sat to discuss how to force shipping lines to take their containers. The reality is the prices have jumped so much ships are being turned around so fast they don't want to wait for inventory. Empty containers are quick and easy to load without having to worry about balancing and spreading the weight out which takes planning and time. The rate of $10 000 per 40ft container is just too tempting for many shipping lines. Liners are dismissing export cargo bookings as the Asia-US route is more lucrative and not US-Asia.

Shipping tariffs have gone through the roof as brokers are reporting to hire a vessel is 3 x more expensive than they were before Covid hit. Smaller vessels that carry 4800 containers are being leased for around $35 000 per day and the bigger vessels are now running at $150 000 per day. This excludes fuel and port costs etc.

The problem is there are still delays happening with massive backlogs that have never been caught up due to the original container shortage. I know as I have been helping out with the family business managing the containers. 21 day delays are common plus throw in the delivery time which doesn't help as forwarders are in such a hurry to turn the containers around. In the past you normally paid for 2 weeks storage as part of the service and delivery fee before demurrage hit you in daily penalties. There is no service storage as the containers are delivered as soon as they are offloaded.

I am not certain where this is all heading but there is an easy answer and that is too fill your stores with locally manufactured goods. What happened to everyone complaining about having all your eggs in one basket and having everything coming out of China is not helping matters. This is going to continue for years if countries don't get their act together and start manufacturing for themselves.