Large shippers concerned about supply as back-to-school and pre-Christmas peak season gets underway
SOME of the largest shippers in the US are continuing to suffer from container shortages as the back-to-school and pre-Christmas peak shipping season gets underway on the transpacific trade.
During what is a traditional financial results season for US-listed corporations, executives leading firms shipping toys, clothing and household goods reported facing problems with both capacity on vessels and a shortage of boxes.
However, with US retailers of these products reluctant after being stuck with vast amounts of stock when the recession first hit and consumer spending tightened, friction was growing with shippers who were concerned goods weren’t being ordered far enough in advance.
Toymaker Mattel’s chief executive Bob Eckert said: “Today I am probably more concerned about supply than demand. In China we see labour supply tightening, the rates are up, shipping containers are in short supply and freight is taking longer to move than it sometimes does.”
Clothing manufacturer Polo Lauren’s chief operating officer Roger Farah said: “I believe that the last 18 months’ difficult environment has caused all retailers, whether they’re internal to Polo or whether they’re our wholesale partners, to be more cautious about inventory planning and to be focused on trying to sell through more at full price and turn the inventory faster.
“From point of manufacture to ordering to delivery, there’s a lot of pressure on the entire supply chain to be very precise about the level of inventory and the sell throughs. Our inventory, despite a sales increase, is down and another one of those facts that tumbled on to over the last ten years is that we have added $3bn in sales and only increased inventory by $110m.”
Mr Eckert added: “Retail inventories are down below a year ago, and people were pretty tight with inventory last year. My view is that trend is going to continue this year. I don’t think retailers anywhere are looking to rebuild inventories. When the consumer buys, we will buy more.”
All shippers have had to deal with increased freight rates, and Brian Sondey, chief executive at container leasing company
TAL International said that container lease rates had increased 5% during the second quarter, while lease rates for recently delivered boxes — it took delivery of 115,000 teu in the second quarter from Chinese manufacturers — were some 75%-80% above the average lease rates in its fleet.
“One reason why freight rates have been so strong through the summer, despite the fact that there is excess vessel capacity, is that container capacity is in short supply and so lines have to pay us and our competitors a premium to get the boxes and they have to pass that premium onto the shippers,” Mr Sondey said.
He forecast that the container shortage was likely to continue well into next year. “Traditionally shipping lines have owned 55-60% of the global fleet, but this year they have been reluctant to invest even as volumes and profits have returned because their vessel expansion plans require a large amount of ongoing capital.
“As a result they have been happy to avoid making large investments in their container fleets and happy for us to make that for them.”
He added that higher container prices had also had an effect: “It is around $2,700 for a 20ft box, and these high container prices are limiting shipping lines’ interest in buying boxes. To be honest, the economic uncertainty is actually helping us because the lines are less willing to buy.”
TAL invested over $675m in new boxes this year, including 230,000 teu and 21,000 teu of reefer containers. Overall, Mr Sondey said that he expected 1.7m-2m teu to be delivered into the global fleet this year, although that figure depended on Chinese production capacity in the fourth quarter. At the same time there was likely to be about 1m teu of disposals. He said that in a normal year during the growth period of the previous decade, 3m-4m teu would typically be delivered.
