If there’s one thing almost everyone in the furniture industry is talking about these days, it’s container prices.
While the average price for a 40-foot container in the home furnishings industry ranges between $4,000-$5,000, they’ve skyrocketed over the last year and a half to $20,000 or higher.
While larger importers like Wal-Mart and Home Depot are still paying fairly low prices for containers—according to Jason Miller, associate professor of supply chain management at Michigan State’s Eli Broad College of Business, smaller businesses like those in the home furnishings industry are taking the brunt of the blow.
Miller adds that this doesn’t surprise him because most of those shipments do not have long-term contracts. Therefore, these price increases disproportionately affect smaller businesses.
“Walmart is not paying these prices, and Target is not paying these prices,” Miller explains. So this hurts the smaller importers, much more so than the larger mega importers.
“Looking at what we’ve seen, it seems like things may have peaked around mid-September when the Shanghai to Los Angeles index was about $12,433 per 40-foot container,” he continues. “At the moment, I think we’ll start to see rates easing down on the spot basis as we get into Q1 and Q2 of next year because demand will start to have waned. Another thing to keep in mind is there’s a perverse effect of the ships having to wait longer at the ports. So the more ships that are waiting at the port, the less supply of vessels there is to move the other imports that need to move, and therefore the higher the price can be.”
Despite grumblings from the industry, Miller also adds that he’s seen no real proof of collusion—as some people have accused the shipping companies of price gouging—and that this is just how a market works with “demand that was very elastic and changed dramatically due to consumer spending, and supply that can’t quickly be added to the system.”
Veteran industry analyst Jerry Epperson, managing director of Mann, Armistead & Epperson, Ltd., added that a labor shortage has contributed to the problem as well.
“In 2020, we shut everything down for about two months,” Epperson explains. “And we just can’t snap our fingers and get everything back rolling. We found a lot of those people weren’t particularly happy coming back to work. Now, on top of all that, ships were docked and they didn’t know they’d be there for two months, or 20 months.”
Some of those ships were slow getting back out, and carrying that a step further, there were containers here and there that kind of were set aside that they didn’t think they needed for a while, Epperson says.
“We ended up with a situation here within six months where we didn’t have enough containers, we didn’t have enough ships,” he explains. “And when they finally got going, there were too many all at once for our ports, particularly our West Coast ports. So we have had these delays.”
Companies bid on containers with the inability to get trucks to pick them up, and they bid the trucks without enough rail to move them, and they bid on the rail so everything is backed up.
Epperson said that hit a peak about probably six weeks ago, in early October, and many furniture companies decided not to pay over $20,000 for a container because the shipping companies wouldn’t honor the original contracts that said they would have to pay around $4,000-$5,000 per container.
“I’m upset with Uncle Sam because they sat around and didn’t do a damn thing until this hit a critical period,” he says. “What broke the camel’s back on this one was when we got near the Christmas season. And when Christmas and the holiday season hit, all those gifts and toys had to be in the stores. So here you’ve got the Christmas season people saying ‘You better buy earlier or you may not get what you want,’ and some furniture people are out there quoting 12 months delivery, which is obscene.”
He says the great frustration for everyone in our industry is that after a long, long time, all of a sudden, consumers recognize the value of home furnishings products. They want to buy furniture and they happen to be in a position of liquidity where they can afford to buy our products, but the industry can’t get our products to them.
“I can’t think of anything more frustrating to a retailer than to have customers come in, want to buy, and you can’t sell,” Epperson adds. “It’s just a killer to the salesmen, it’s a killer to the owner of the store. It’s just tragic.”
As for what’s on the horizon, Epperson says that every day that passes we’re getting better. And part of this is, we don’t have as much consumer demand. And as much urgency, as we had three months ago for our home furnishings products, consumers recognize it takes longer to get them.
“At the same time, now they began to travel and go out to restaurants and other things,” he says. “So I think that’s come together at a good time. Now, hopefully, the consumer will remember what they want. And when they can get decent delivery times they’ll come back and get that furniture they wanted.”
Lars Jensen, a shipping container shipping expert, and consultant posted on LinkedIn that as of November 5, there are still 79 vessels outside the ports of L.A. and Long Beach, which unfortunately shows no improvement.
To help improve the situation, the Biden administration is imposing new fines on carriers on these two ports to try and ease the intensifying logjam of cargo ships.
And last weekend, the U.S. House passed a bipartisan, $1 trillion-dollar infrastructure bill designed to build and make improvements to roads, bridges, railroads, ports, and more.
According to the National Retail Federation, imports at the nation’s ports are expected to remain at near-record levels for the rest of 2021, and traffic is expected to remain high going into the new year—with January 2022 forecast at 2.21 million TEU, up 7.6% from January 2021 and February at 2 million TEU, up 7% year-over-year, according to the NRF and Hackett Associates’ Global Port Tracker.
However, news reports and this LinkedIn thread show that it may not just be containers that are holding everything up.
A California truck band, which says all trucks must be from 2011 or newer, and a law called AB 5, which prohibits owner-operators, are also culprits.
“Long term, truckers in California are not investing in new trucks because California has a law that makes them illegal,” the post says. “The requirement is to purchase electrics trucks, which do not exist.”
All of this data together makes it clear that this is a set of complex problems that cannot be solved overnight. And truth be told—because things can change on a week-to-week basis—no one knows exactly when this will end or what’s in store for the future.
Zeen is a next generation WordPress theme. It’s powerful, beautifully designed and comes with everything you need to engage your visitors and increase conversions.