All-Time High Ocean Freight Costs. How Does It Affect Furniture Retailers?
We are finding ourselves in what seems like a never-ending pandemic situation. 2022 has been seen as the year the world finally comes back to normal, but many industries are still struggling with the lurking consequences of the pandemic.
One industry that is severely hit by the ongoing changes is supply chain, primarily ocean freight.
In this blog post, we will focus our attention on the exponential increase in ocean freight costs—why it is happening, what researchers are predicting for this year, and how it all affects furniture retailers and manufacturers alike.
The Current Situation of Ocean Freight
Whether you ship (or buy) shoes, toys, or furniture, the products are coming to you by sea/ocean. Especially as buyers, we don’t really think about how the products get to us, but, these days, it’s probably a concern all of us should have—because all of us are impacted.
Because of the dramatic changes the pandemic has ignited, the ocean freight processes are highly unstable. It all started in 2020 when, forced to stay home, people began buying massive amounts of products, so there was a sudden increase in demand that strained the supply chain.
Companies are still experiencing extremely high demand, but are left to deal with getting their products to their customers however they can. Between the lack of workforce, long-lasting delays, and limited access in key ports, leaders have to channel their efforts into paying huge rates as well.
Just to give you a better idea of how much the rates have increased, take a look at Freightos’ insightful pricing trends comparison (January 21st 2021 vs. January 22nd 2022):
Freightos calculates the Freightos Baltic Index (FBX), which is the leading international Freight Rate Index, in cooperation with the Baltic Exchange, providing market rates for 40′ containers (FEUs).
As you can see in the image, there’s an increase of ~ 43,5% in price compared to last year.
To further expand the on the situation, Freightos also posted an update about the ocean freight rates for the first week of January 2022:
Global freight rates decreased 5% to $8,917, but it’s still 140% higher than this time last year
- Asia – US West Coast rates decreased 14% to $12,524, but it’s still 218% higher than this time (week 1 of January) last year
- Asia – US East Coast container rates stayed basically the same as the last week of 2021 at $16,495, but it’s still 232% more expensive than last year
- Asia – North Europe container shipping rates also remained level, decreasing 2% to $14,240, almost double last year’s rate
- North Europe – US East Coast rates decreased 10% to $6,230, but this is nearly 240% higher than December 2021
Long story short: It’s not looking good.
However, industry experts often mention the Lunar New Year in China, and the possibility of ocean freight costs going down once it’s over.
The Lunar New Year gets mentioned both for the peak demand during the holiday season in China, and for the shortage of Chinese workforce to handle manufacture and shipping during the holiday–which is an obvious imbalance. This will, most likely, further increase the ocean freight prices, but the consequences are yet to be determined.
Sources like Chris Edwards (group MD at Auckland-based Go Air Land Sea Logistics), however, predict that the global surge in freight cost will not slow down at least until Quarter 4 of 2022.
What does it mean for furniture retailers?
According to a report by UNCTAD (United Nations Conference of Trade and Development), the furniture and furnishing industry are heavily impacted.
Not only will the furniture freight costs (import and export) be higher, but the production costs will rise as well, which can raise consumer prices and slow national economies. When it comes to low-value-added items such as furniture, clothes, textiles etc, the report predicts that consumer prices will be 10.2% higher.
The US imported furniture comes from Asian marketing like Vietnam and China—this being the case for roughly two-thirds of all imported furniture in the US.
An article from Shipping Watch, based on research done by Sea-Intelligence, says that the price of shipping a 40-foot container with assembled furniture from Asia to the US West Coast is currently so high that freight rates make up almost 100 percent of the furniture’s retail value.
According to the same research report, items that have low retail value (furniture is considered to be in this category) will have a very hard time generating profit after the rates that have to be paid to ship them.
Between the severe restrictions in Asia, related to COVID-19, and the extremely high demand in the US (and in the world, for that matter), the average cost of a standard 40-foot shipping container is 5x higher than last year, going from ~ US$2,000 to ~ US$10,000.
What does this increase in furniture freight costs mean for furniture retailers and manufacturers?
Well, what’s clear is that trying to ship or receive furniture is extremely expensive. And not only that, but manufacturers also report sending products, but the carriers are not fulfilling their tasks. In short, it’s a mess, so be prepared to jump through a lot of hoops.
Besides the high cost, it’s hard to say. But there seems to be an increase in the number of people that restore old furniture and/or buy furniture from local, smaller manufacturers, so that’s work keeping in mind.
The general consensus seems to be that there is a light at the end of the tunnel in 2022. When? We don’t know, but it’s good to know that this mess will finally come to an end soon.