Stopgap or new approach?
Retailers in the USA charter transport space most frequently.
The list of companies chartering their own maritime transport space – and sometimes even aeroplanes – is long, and includes Walmart, Home Depot, Ikea and American Eagle Outfitters. The aim is to avoid the risk of losing customers due to empty shelves. Manik Mehta, ITJ correspondent in New York, looked into the question of whether retailers will enter this business permanently.
Now large retailers sometimes resort to chartering cargo ships themselves, as a reaction to massive congestion outside and inside ports, which has resulted in delivery shortages as well as to high transport costs. Many companies already started stocking up on goods from all over the world before the Christmas season started, as the pressure on companies such as Walmart, Home Depot, Target and Ikea grew tremendously.
However, according to John Gonzalez, a freight forwarding expert who works in New York, “chartering vessels can be considered a short-term solution to help some players overcome ongoing disruption – but it probably can’t become a genuinely viable long-term solution.”
Chartering ships – the pros and cons
James Hookham, the director of the Global Shippers’ Forum (GSF), suggested at a recent event he participated in that such chartering was beyond the usual scope of shipping. By resorting to this tool, US retailers could have bypassed conventional distribution channels much earlier and established their own ‘product lifeline’ abroad.
Some experts believe that Walmart managed to increase sales to approximately USD 30 billion in 2021 by chartering ships. So the strategy has proved successful, even if charter contracts for containerships have resulted in higher costs. Added to this is the sluggish construction of newbuildings. The number of ships in the international ocean-going fleet is growing only slowly, so chartering individual cargo ships is more expensive than conventional shipping.
At sea – and in the air
Nevertheless, the American Eagle Outfitters corporation already went a step further recently and transported goods on a chartered aeroplane, and not on a chartered maritime vessel. Its overall net sales increased by 24% year-on-year to USD 1.27 billion. The corporation’s CFO, Mike Mathias, made this announcement during a conference call on its results for the third quarter of 2021.
So chartering ships appears to be an effective strategy, although it doesn’t have to be right for every importer. The security of keeping enough goods on the shelves often outweighs the additional costs incurred by chartering.
Among the retailers most fearful of losing customers is Asda, a notable supermarket giant. By chartering its own container ships it has ensured that supply bottlenecks for products such as toys, clothing, gift items and the like could be avoided during the peak season. Costco and Walmart have also chartered ships to secure their inventory.
Bottlenecks to last beyond 2022?
For the wheel continues to turn. Economists have warned that the combination of ‘generous’ monetary policy, massive economic stimulus programmes and high household savings would lead to demand exceeding supply. Many experts therefore haven’t ruled out that the bottlenecks will last beyond 2022; optimists, in turn, expect the situation on the world’s oceans to ease by the end of the year.
“The number of newbuildings on order is much higher today ... and this will help to reduce overall capacity problems in the long term,” says one expert. However, companies must continue to expect not only long waiting times, but also sharply increased freight prices. According to freight forwarders, the cost of a shipping a container loaded full of cargo from China to California, for example, has risen from around USD 1000 in 2020 to approximately USD 20,000 in 2021.
Higher levels of availability
It was only through “unusual measures”, as one forwarder told the ITJ in a recent conversation, that US president Joe Biden had managed to get a grip on the crisis rocking the USA. Ports there traditionally operate from Monday to Friday.
Now the Biden administration has successfully negotiated with unions, terminal operators and other parties involved to change these working hours, and to open the ports seven days a week. For example, the port of Los Angeles will remain open for 60 additional hours a week. Together with its ‘sister port’ of Long Beach the Californian gateway handles approximately 40% of all US container imports.
Because of the feared impact of the supply chain crisis on the economy, the US president also demanded “greater cooperation” from the private sector. For example, major department stores such as Target, Home Depot and others have responded to Biden’s request to provide more personnel for logistical purposes. Still, the number of companies chartering ships is still small.
The overall conclusion is that chartering ships is no more than a temporary solution in today’s ongoing crisis. As soon as the freight transport market normalises again, firms will discard chartering as a superfluous measure for their core business.