A Home Depot location in Encinitas, California.
Mike Blake | Reuters
Home Depot is one of the largest importers in the country. Yet with congested ports, container shortages and Covid-19 outbreaks slowing shipments, the company made a decision: it was time to have its own ship.
“We have a ship that will be uniquely ours and it’s just going to be going back and forth with 100% dedicated to Home Depot,” COO Ted Decker said in an interview. This is the first time that the company has taken such a step.
Decker said the contracted vessel, which will begin operating next month, is just one example of the unusual steps the company is taking to deal with the challenges that have ricocheted through the global supply chain.
On rare occasions, The Home Depot has also transported power tools, faucets, electrical components, fasteners and other “smaller and higher value items” by air cargo, he said. In other cases, he has chosen to buy items on the spot market, even though it can cost up to four times the contract rates.
Other retailers have also had to go to great lengths to try to stock stores and distribution centers and meet consumer demand as the economy recovers from the pandemic. For buyers, logistics issues for retailers translate into stockouts, long delays before a purchase arrives, and higher prices.
The global shipping problem comes at an important time for the industry, said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, a trade group. Retailers are heading into peak season for shipping holiday merchandise, which typically begins in August.
“Right now they’re all trying to figure out ‘How do we mitigate that risk to make sure we have the product here in time for the holiday season sales to start?” He said. “It could mean a delay in when you bring your product in, which could still lead to further congestion and delays. “
A lot of problems
More than a year after the start of the pandemic, Gold said, retailers continue to play with a recurring set of problems. He said businesses have faced these issues regardless of their size and the type of merchandise they sell.
” We see [issues with] everything from clothes and shoes to furniture, handbags, toys, consumer goods, electronics, ”he said.
Soaring demand contributed to the problem, Gold said, as people spent money on goods rather than services like restaurant meals and travel while being stuck at home for months.
Home Depot was taken by surprise, Decker said, when consumer appetite for home improvement took off during the pandemic. The company recorded strong sales growth quarter over quarter. This continued into the first fiscal quarter, as the company’s same-store sales climbed 31% year-over-year.
A Covid-19 outbreak in southern China is a new concern. As Chinese authorities try to stop the spread, they have restricted the number of ships that can access the ports of the main export hub. This forces some ships to jump over harbors or anchor offshore while boats wait to dock. Major shipping companies, such as Maersk, have warned customers of the delays. It has caused the biggest backlog since at least 2019, according to a Reuters report.
Costs have also increased due to the issues. Nathan Resnick, CEO of Sourcify, a company that connects businesses to manufacturers, said freight rates had “risen dramatically.” In an interview with CNBC’s “The Exchange” earlier this week, he said the cost of a 40-foot container has increased by more than 150% on the West Coast and even more on the East Coast.
He estimated that companies may have to increase prices between 5 and 20% to compensate for the increase. “Much of that cost can be passed on to consumers where prices may be higher this holiday season,” he said.
“Until the suite C”
Gold said that since the pandemic, finding faster and more efficient ways to move goods around the world has become an urgent priority.
“It really hit the C-suite level, in terms of how people mitigate the current challenges they’re facing right now,” he said.
Among the strategies explored by the executives include diversifying supply chains by importing materials and goods from other countries outside of Asia or closer to the United States, adding air freight to the mix and passing orders even earlier, according to Gold.
For companies like Home Depot, Decker said size is a competitive advantage. It is the third-largest US importer by volume of shipping containers, according to the most recent annual ranking from the Journal of Commerce, a magazine and website that covers global trade. Walmart and Target are the two largest US importers, and Home Depot’s rival Lowe’s is fourth, followed by Ashley Furniture.
“We have a strong, contractual capacity that our suppliers have largely honored,” he said. “[It’s] Long-term thinking: “Covid doesn’t last forever, so make your best customers happy.” “