Retailers rush to avoid delays to spring collections due to Red Sea
attacks
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[January 10, 2024] By
Siddharth Cavale and Helen Reid
NEW YORK/LONDON (Reuters) - Retailers worldwide are stocking up on goods
before China's Lunar New Year holiday and seeking air or rail
alternatives to transportation via the Red Sea in a scramble to avoid
empty shelves this spring, executives and experts told Reuters.
One European retailer said it was delaying marketing campaigns for some
specific goods until stocks were secured.
Major container ship operators like Maersk and Hapag-Lloyd are
re-routing vessels away from the Suez Canal - the shortest route from
Asia to Europe - after militant attacks on vessels in the Red Sea.
The diversions have raised fears of another prolonged disruption to
global trade just as supply chains unsnarl after the COVID pandemic.
Going around southern Africa instead adds $1 million in fuel costs and
about 10 days to the journey.
Interviews with five retailers selling everything from furniture to
mechanical components, and with analysts, show the unusual steps
companies are taking to adapt.
U.S.-based BDI Furniture is front-loading orders and relying more on
factories in Turkey and Vietnam. It is also asking freight brokers to
bypass the Panama and Suez canals and ship goods across the Pacific
Ocean to California, where they can be transported by rail to its east
coast U.S. warehouse.
Hanna Hajjar, vice president of operations at BDI Furniture said it has
low stocks of some media cabinets, bedroom and office furniture that are
already on ships.
"We just did not expect all these recent delays," he said, adding that
the disruptions have lengthened transit times from Vietnam by 10-15
days.
Companies transporting goods from China to Europe and the United States
are considering alternatives like rail and air, but high prices mean
they have to be strategic about which products to prioritize.
Hajjar says BDI is using the California route as a solution on a
case-by-case basis because rates are now double the normal cost of
shipping through Suez or Panama.
Even though Asia-to-Europe trade is most exposed to the Suez
disruptions, as much as 30% of shipments to the U.S. East Coast move via
the canal.
RACE AGAINST TIME
Retailers are also in a race against time: on Feb. 10 factories in China
close for anywhere from two weeks to a month for the Lunar New Year
holiday, so companies typically try to export as much as possible
beforehand.
But with vessels rerouted, fewer ships will be back in China in time to
load cargo before the holiday. That means likely delays to products
meant to land on Western shelves in April or May. Logistics experts are
already reporting a container shortage at Ningbo port in China.
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Houthi military helicopter flies over the Galaxy Leader cargo ship
in the Red Sea in this photo released November 20, 2023. Houthi
Military Media/Handout via REUTERS//File Photo
"The worst thing to happen to a retailer is having a significant
delay on a product that they won't be able to market because of
seasonality," said Rob Shaw, general manager for EMEA at inventory
software company Fluent Commerce.
Europe's Aldi Nord said it may receive items like household goods,
toys and decorations later than planned, and is postponing the
advertising of specific products as a result.
Britain's Next said the delays were manageable compared to those
during the pandemic. But the retailer, which sources most of its
products from Asia, could mitigate this through earlier ordering and
using more air freight.
"The lessons (from COVID) are on stock being delayed - order a
little bit earlier and allow for a little bit more air freight," CEO
Simon Wolfson told Reuters.
One option is a rail route from western China to eastern Europe.
Craig Poole, UK managing director of Cardinal Global Logistics, said
the cost of using it has jumped to around $9,000-$10,500 per 40-foot
container from around $7,000 in November, and is increasing daily.
IC Trade, which exports mechanical components from China to Italy,
is exploring the rail option but "it's not easy to find the space,"
said founder Marco Castelli. "To make up for one vessel, you need
100 trains."
Polish fashion retailer LPP said it is considering rail or sea-air
alternatives for its "most urgent" collections.
RBC analysts said continued disruptions could hurt European
retailers' gross profit margins, while the prospect that fresh
supply chain strains will push up prices has raised fears of another
bout of global inflation.
For some companies, the latest disruptions highlight the need to
permanently shift supply chains so factories are closer to the end
consumer, a process often called "near-shoring".
BDI Furniture aims to cut its dependence on China to 40% of total
orders over the next two to three years from 60% currently, by
sourcing more from Vietnam and Turkey.
(Reporting by Helen Reid in London, Siddharth Cavale in New York,
Lisa Baertlein in Los Angeles, Additional Reporting by James Davey
in London and Casey Hall in Shanghai; Editing by Josephine Mason and
Catherine Evans)
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