US ports are overloaded with record levels of congestion and container shortages – and that could spell big trouble for shoe brands and retailers.
As the health crisis continues to keep many Americans indoors, spending has generally shifted away from services like travel, spas, movies, restaurants and more toward tangible discretionary goods including household items. , footwear and clothing. Analysts say the surge in imports has led to longer delivery times and higher transportation costs for brands and retailers, who are already facing rapidly changing consumer preferences and other market disruptions. the coronavirus-related supply chain, such as the temporary loss of workers who may be ill. let.
In the past two weeks, Nordstrom, Gap and Steve Madden as well as Merrell and Saucony parent company Wolverine Worldwide were among some of the national chains that warned analysts during their earnings conference calls of logistical issues related to the COVID-19 pandemic. Primarily, the ports of Los Angeles and Long Beach in California – which account for nearly half of the US’s total imports from Asia – are currently handling record volumes as retailers scramble to replenish inventory in due to increased consumer demand.
“Now we’re in this position where three issues need to be addressed: one, balancing the imbalance of containers since we have too many here and not enough in Asia to load them,” explained Brian Whitlock, senior director and analyst at The Gartner’s logistics and fulfillment team. “Secondly, the problem of congestion. While the situation for containers may slowly improve over time, ports may still struggle until the third thing is addressed: demand – which needs to drop or rise. standardize before ports can even begin to catch up.
Last week, Steven Madden Ltd. CEO Ed Rosenfeld warned of the negative effects of congestion on its supply chain in the coming months. It noted that shipping times have been extended by an average of three to four weeks and that the disruption could contribute to a $30 million impact on its first-quarter revenue.
Wolverine World Wide Inc. CEO Blake Krueger also suggested last week that the company expects a revenue shift of $20 million from the end of the first quarter to the start of the second quarter due to logistical delays. “We expect some of these port congestion, ocean freight and inland transportation issues to improve steadily over the course of the year,” he added, noting that “it will last… for at least several months.
Additionally, Gap Inc. Chief Financial Officer Katrina O’Connell said the company incurred airfreight charges in the fourth quarter in an effort to address issues at ports. “New COVID-related US port congestion and shipping lane impacts were unanticipated and contributed to higher year-over-year inventory levels in transit,” she said, predicting that the problem could continue throughout the first half of the year.
Although the congestion is impacting the entire retail industry, some experts suggest the pain could be felt most in the apparel and footwear sectors, where goods can be heavily dependent on a seasonal cycle.
“It’s about the importance of delivering products on time. Some shippers are concerned that their ranges, which may be made for specific retailers, may not arrive in time for the season, and that they may be forced to liquidate some of that inventory,” said practice associate partner Joshua Brogan. strategic operations. at Kearney. “The inability to plan and ensure inventory gets to the right place at the right time is very sensitive for apparel and footwear manufacturers.”
But not all retailers are caught between a rock and a hard place: Delivery backlogs caused by West Coast port disruptions could create an opportunity for off-prices — like Ross Stores Inc., for example — to take canceled orders from full-price stores and sell them at bargain prices.
“We still see very good supply opportunities in the market,” Ross CEO Barbara Rentler said on a fourth-quarter conference call with analysts this week. “Congestion at the west coast port has obviously slowed down some of the revenue coming into the country, so traders are constantly moving and shaking depending on what’s coming.”
She added: “In terms of the end state of availability following the port disruption, I think at some point there will be a bubble. I don’t think we’ve seen that bubble yet. But at some point, historically, when things start to self-correct, there will be an inventory bubble… We would expect that at some point that would pull back and there would be an opportunity.
As for the duration of congestion at major US ports, experts suggest businesses could start to see improvements in the second half of the year. In the meantime, as they face shipping constraints, as well as a limited availability of truck drivers to haul goods across the country, retailers are being encouraged to plan ahead for the seasons. summer and back to school – and maybe as far away as fall and the holidays.
“Retailers need to think differently about how they manage their supply chains,” said Ken Cochran, senior director of consumer and retail group at Alvarez & Marsal. “They have to push themselves to do what they might never have done before or what feels unnatural. The cargo space is incredibly dynamic right now, and the only way to overcome that is to be extremely creative and breaking the rules.