Companies are finally getting some relief from their supply chain costs. But shoppers are unlikely to save even more this holiday season, experts say.
Shipping costs for freight containers across the Pacific have cooled from record highs during the pandemic, when demand for Asian-made goods outstripped supply. According to Freightos Baltic Index data, at its peak in mid-September 2021, the average charge to secure a container on a vessel from Asia to the US West Coast reached $20,586, a 15-fold increase since early January 2020.
By contrast, the median price for freight containers on Friday was $2,720. However, several factors, including large stores suffering from overstocking, preventative holiday shopping, and rising gas and labor costs, are preventing retailers from lowering inventory prices.
At the height of the pandemic, when global lockdowns forced everyone out of the house and prevented them from spending money on a night out with friends or on vacation, consumers turned to shopping online to boost the economy.
The sudden demand for goods caused operating costs to skyrocket. In particular, the cost of transporting cargo containers from Asia soared. With a handful of large operators dominating the market, fares have doubled, tripled and quadrupled his.
According to Freightos, freight costs from China and East Asia to ports on the U.S. East Coast surpassed $22,000 last September. At the beginning of January 2020, the average cost was $2,649. Lockdowns have suddenly changed consumer behavior in ways no one in the industry could have predicted. Demand for new products is low.
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Suppliers, manufacturers and retailers are seeing a decline in orders from Asia, partly due to dramatic changes in consumer behavior. Inflation remains at his 40-year high, forcing shoppers to spend their money more strategically. This includes giving up clothes and electronics in order to be able to buy things like food and gas.
Unaffected by price increases, wealthy consumers tend to spend more on experiences and entertainment. These changing habits are taking a toll on business. The country’s dominant retailers have had to contend with excess inventories. Target, Amazon, Walmart, and Kohl’s all launched holiday sales earlier this year to reduce inventory. Big brands like Nike and J.Crew offer big discounts.
Retailers are also more strategic this year when it comes to ordering Christmas inventory early to avoid the kind of supply chain headaches they experienced in 2021. The price of a product is determined not only by the transportation cost of a freight container, but also by various factors such as labor costs and gasoline.
In addition, according to Patrick Penfield, a professor of supply chain practice at Syracuse University, many items on the shelves were likely purchased when shipping costs were high, so the price reflects that charge. It is also common for retailers, suppliers and manufacturers to enter into long-term contracts with carriers. Therefore, even if the average cost drops, it may still be tied up at a higher rate.
Experts predict prices will fall, but it will take a long time. Inflation, especially rising wages and fuel costs, is still plaguing businesses. But a sharp drop in fares will eventually soften prices.
But other supply chain problems await us and could wipe out hopes of lower prices in the coming months. For example, in the fourth quarter, online Christmas shopping will make trucking the preferred mode of supply chain. Logistics experts are already warning that shortages of capacity and truck drivers are likely to push up rates, as well as increased demand.
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Source: Washington Post
