Summer Cargo Crisis Eases Up

Sep 09, 2010 10:23 PM  By

It was widely reported this summer that retailers were paying at least twice as much as last year in cargo freight costs, thanks to rising demand for imports combined with shrinking space on cargo ships.

The problem stems from last year when stores cut inventory: Shipping demand fell and ocean carriers took ships out of service. That caused the two Chinese manufacturers that control the market, CIMC and Singamas, to close their main factories, and led to an acute shortage of the 20-ft. to 40-ft. containers used to transport goods, according to a report by The Australian, Australia’s national newspaper.

Indeed, says shipping expert Gerard Hempstead, president of Hempstead Consulting, space has been tight, particularly coming out of Asia and, specifically, China for months now.

The situation in early summer had some merchants fearing they wouldn’t be able to get their fall goods in time. But conditions have improved since then.

Home decor and gifts merchant Touch of Class paid premium charges to secure space on vessels from June 1, when the problem began, through August 26, says its purchasing agent George McCahey. The space problem tapered off considerably since the end of June, he notes.

In June, 24 of Touch of Class’s containers were affected, in July, 6 were affected and in August only one was affected.

“We place our orders well in advance of our need dates and, therefore, rarely have a requirement for an expedited shipment,” McCahey says. “Even during the recent space crisis, we had been able to avoid premium prices in many instances by waiting as much as an additional week or two for space on a vessel.”

While 90% to 95% of its goods come from China, Ian MacDonald, vice president and general manager of party supply merchant Century Novelty, says he did not see any delays in shipments.

But MacDonald notes that only a handful of those imports come direct to Century Novelty by way of China. The merchant deals with “a few hundred” importers who work with customs to get the majority of their goods from China.

“Some ships have been out of commission, and we were charged more for cargo because of supply and demand,” MacDonald says. “We haven’t heard anything out of the ordinary from our buyers, although there was a bit of a delay (in June) caused by congestion at Long Beach.”

Paul Kalemkiarian, president of wine merchant Wine of the Month Club, said he was familiar with that Long Beach backup, but that it didn’t affect his shipments from South America or South Africa.

Based on Kalemkiarian’s business, that’s important, too. Wine of the Month Club needs shipments to arrive 30 days ahead of its sales period so Kalemkiarian can do a tasting and promote the product in its customer newsletter.

But his distributors have noted that port inspections have been more diligent, which has slowed down some of the port traffic.

Import cargo volume at major retail container ports is expected to be up 16% in September over the same month last year. But 2010 has already hit its peak and numbers will decline through the remainder of the year, according to the monthly Global Port Tracker report released Wednesday by the National Retail Federation and transportation and logistics consultancy Hackett Associates.

While October is the traditional peak month of the annual shipping season as retailers bring in merchandise for the holiday season, July’s figures appear likely to stand as the peak for 2010. The shift was mostly due to backlogs built up due to the lack of shipping capacity earlier in the year after ship owners took vessels out of service during the recession.

“There is sufficient evidence to suggest that importers anticipated the peak season and bought early, partly as a result of a fear of lack of capacity and containers but also as a means to avoid the hefty peak season surcharges announced by all the carriers,” Hackett Associates founder Ben Hackett says. “The good news is that the influx of new capacity will continue to put downward pressure on freight rates.”