How bad are global shipping snafus? Home Depot contracted its own container ship as a safeguard
- Home Depot has reserved its own ship, bought merchandise on the spot market and flown in power tools as it copes with supply chain headaches.
- The pandemic has created complexities that have ricocheted across the globe, from congested ports to soaring consumer demand.
- One of the most recent challenges is a Covid-19 outbreak in southern China.
Home Depot is one of the largest importers in the country. Yet with congested ports, container shortages and Covid-19 outbreaks slowing shipments, the company made a decision: It was time to get its own boat.
"We have a ship that's solely going to be ours and it's just going to go back and forth with 100% dedicated to Home Depot," President and Chief Operating Officer Ted Decker said in an interview. It marks the first time that the company has taken such a step.
Decker said the contracted ship, which will begin running next month, is just one example of the unusual measures that the company is taking as it copes with challenges that have ricocheted across the global supply chain.
On rare occasions, Home Depot has also flown in power tools, faucets, electrical components, fasteners and other "smaller, higher value items" by air freight, he said. In other cases, it has opted to buy items on the spot market — even though it can cost as much as four times more than contracted rates.
Other retailers have also had to go to great lengths to try to stock stores and distribution centers and keep up with consumer demand as the economy recovers from the pandemic. For shoppers, retailers' logistical woes are playing out in the form of out-of-stocks, long delays before a purchase's arrival and higher prices.
The global shipping snafus come during an important time for the industry, said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, a trade group. Retailers are heading into peak season for shipping holiday merchandise, which usually begins in August.
"Right now, they are all trying to figure out 'How do we mitigate that risk to make sure that we've got the product here in time for when those holiday season sales start?'" he said. "That could mean moving up timing for when you bring your product in, which could further lead to additional congestion and delays."
A whack-a-mole of issues
More than a year into the pandemic, Gold said, retailers continue to play whack-a-mole with a revolving set of problems. He said companies have faced those issues, regardless of size and the type of merchandise they sell.
"We're seeing [issues with] everything from apparel to footwear into furniture, handbags, toys, consumer goods, electronics," he said.
Soaring demand has contributed to the problem, Gold said, as people have spent money on goods rather than services like dining out and traveling while stuck at home for months.
Home Depot was caught by surprise, Decker said, when consumers' extreme appetite for home improvement took off during the pandemic. The company has shown big sales growth quarter after quarter. That continued in the fiscal first quarter, with the company's same-store sales soaring 31% year-over-year.
A Covid-19 outbreak in southern China is a new concern. As Chinese authorities try to stop the spread, they have restricted the number of vessels that can access ports in the major exporting hub. That's forcing some ships to skip over the ports or anchor offshore as the boats wait to dock. Large shipping companies, such as Maersk, have warned clients about delays. It has caused the biggest backlog since at least 2019, according to a Reuters report.
Costs have risen due to the issues, too. Nathan Resnick, CEO of Sourcify, a company that connects companies to manufacturers, said freight rates have "spiked significantly." In an interview with CNBC's "The Exchange" earlier this week, he said the cost of a 40-foot container has gone up over 150% on the West Coast and risen even more on the East Coast.
He estimated that companies may have to raise prices between 5% and 20% to offset that increase. "A lot of that cost may be passed down to consumers where there may be higher prices this holiday season," he said.
'Up to the C-suite'
Gold said since the pandemic, coming up with quicker and more efficient ways to move goods across the world has become an urgent priority.
"This really has risen up to the C-suite level, in terms of how are folks mitigating the ongoing challenges that they're facing right now," he said.
Among the strategies executives are exploring are diversifying supply chains by importing materials and merchandise from other countries outside of Asia or closer to the U.S., adding air freight to the mix and placing orders even earlier, according to Gold.
For companies like Home Depot, Decker said size has been a competitive advantage. It is the third largest U.S. importer by volume of ocean containers, according to the most recent annual ranking by the Journal of Commerce, a magazine and website that covers global trade. Walmart and Target are the top two U.S. importers and Home Depot rival, Lowe's, is fourth largest and followed by Ashley Furniture.
"We have a solid, contracted amount of capacity that our suppliers have largely honored," he said. "[It's] long-term thinking, 'Covid doesn't last forever so keep your best customers happy.' "