From WWD ISSUE 07/05/2011
Posted TUESDAY JULY 5, 2011
SAN FRANCISCO — After last year’s spike in shipping costs from Asia hit their bottom lines, retailers set to ship goods for the vital second-half selling season are getting rate relief from ocean carriers, according to contract terms that went into effect May 1 for hauling goods to U.S. West and East Coast ports from the Far East.
The improved rate picture is tied to more ocean carrier capacity and cautious ordering by retailers aiming to keep inventories in balance to meet soft consumer demand. These economic factors together spelled a better bargaining position for retailers to avert, reduce or curb rate increases, according to import industry officials.
“The market was somewhat soft, so the carriers by and large either rolled rates over or sought rate reductions,” said Hubert Wiesenmaier, executive director of the American Import Shippers Association, with an apparel and textile clientele.
Companies negotiating cargo rates this year started with a benchmark increase of $400 per 40-foot container to West Coast ports and $600 to the East Coast, as suggested by the carrier-member Transpacific Stabilization Agreement, according to import industry officials. This year’s shipping rates that were confidentially negotiated per company are tame in contrast to 2010, when carriers pushed through sharp increases to recover billions lost in the 2009 recession, according to importers.
In 2010, the TSA suggested increases of $800 to $1,000 per container, in addition to supplemental emergency-rate hikes of $320 to $505 per box. Fuel and peak-season container surcharges of several hundred dollars each were also charged. Last year’s higher rates were possible because of more demand for ocean carriers — sailing at or close to capacity — as retailers restocked inventory after the recession to meet increased consumer spending, reflected in the 2.9 percent rise in 2010 U.S. gross domestic product, following the 2009 GDP free-fall of 2.6 percent.
This is good news in a still challenging retail environment, said Marshal Cohen, chief industry analyst with The NPD Group.
“That is a sizable piece of the puzzle,” Cohen said of cargo costs. “Now things are getting back in balance a bit.”
In addition to this year’s lower rates, there’s been a delay of at least a month of a routine peak season container surcharge of $400 for the busy West Coast ports, first slated to start June 15. The peak season typically runs June 15 to Nov. 30, when holiday-season goods are shipped.
“It’s very tough for the carriers to get the surcharges,” said Jonathan Gold, vice president for supply chain and customs policy with the National Retail Federation. “Retailers are still being cautious with their ordering.”
While in April, cargo shipped to U.S. ports increased 7 percent against April 2010 for the 17th consecutive year-over-year gain, May’s shipments are estimated to have edged up just one-third of 1 percent against year-ago levels, according to a recent report by Global Port Tracker for the NRF.
Likewise, June’s shipments are forecast to gain only 1 percent over the year, followed by a 0.5 percent rise in July. For the traditionally busiest August to October shipping season, U.S. cargo volumes are expected to post year-over-year gains of 3, 12 and 19 percent, respectively, according to the NRF port report.
Whether the peak season West Coat surcharge will again be postponed beyond the rescheduled July 15 date depends on cargo volume, said Wiesenmaier.
“The volume has not been as strong as they initially expected,” he said.
Aside from ocean carrier rates and surcharges, another cargo economic consideration facing importers is whether enough containers will be available to ship their goods during the current peak season.
The supply of containers is in question because of a falloff in manufacturing them in the Far East during the 2009 recession. Although container production has since ramped up, TSA carriers earlier this year warned importers that, depending on peak season cargo volumes, there might not be sufficient supplies to meet increased demand.
However, such concerns seem to have eased, with the current falloff in imports, but there is still uncertainty.
“We don’t know the extent to which there will be peak surges this year,” a TSA spokesman said.
AISA’s Wiesenmaier agreed that “it’s difficult to assess whether there is a container shortage in advance,” noting importers so far haven’t found there to be an issue.
In general, NPD’s Cohen said helping the outlook for shipping has been retailers’ improved ability to order inventory more in line with consumer demand, a lesson learned from holiday 2008, at the start of the recession, when there was heavy discounting.
“Inventories are in balance like last year,” Cohen said, who’s expecting holiday retail sales to increase 2.5 to 3 percent against last year, when sales were up 3 percent. “If you were to compare retail today to five years ago, it is very different. We aren’t buying as plentifully and as impulsively as we once did.”