America’s ports are overburdened 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 traveling, spas, movies, restaurants and more to tangible discretionary goods including housewares, footwear and apparel. According to analysts, the uptick in imports has caused longer lead times and higher freight costs for brands and retailers, which are already contending with rapidly changing consumer preferences and other coronavirus-related supply chain disruptions, such as temporarily losing workers who might be on sick leave.
Over the past couple weeks, Nordstrom, Gap and Steve Madden as well as Merrell and Saucony parent Wolverine Worldwide were among some of the nationwide chains that warned analysts in their earnings conference calls of logistics issues borne out of the COVID-19 pandemic. Mainly, the ports of Los Angeles and Long Beach in California — which account for nearly half of total United States imports from Asia — are currently dealing with record-breaking volumes as retailers work to restock their inventory due to increased consumer demand.
“Now we’re in this position where three problems need to be solved: One, balancing out the container imbalance since we have too many of them here and not enough back in Asia to load,” explained Brian Whitlock, senior director and analyst at Gartner’s logistics and fulfillment team. “Two, the congestion issue. While the container situation might improve slowly over time, the ports could still struggle until the third thing is addressed: demand — which has to drop or normalize before the ports can even begin to catch up.”
Last week, Steven Madden Ltd. CEO Ed Rosenfeld signaled caution about the negative effects of congestion on its supply chain in the months ahead. He noted that shipping lead times have been extended by three to four weeks on average and that the disruption could contribute to a $30 million impact on its first-quarter revenues.
Wolverine World Wide Inc. CEO Blake Krueger also suggested last week that the company anticipated a $20 million shift in revenues from the end of the first quarter into the beginning of the second quarter as a result of the logistics delays. “We do expect some of those port congestion issues, ocean freight, inland transportation issues to steadily improve over the course of the year,” he added, noting “it’s going to be around … for a minimum of several months.”
What’s more, Gap Inc. CFO Katrina O’Connell indicated that the company had incurred air freight costs in the fourth quarter in an effort to navigate the problems at the ports. “New COVID-related U.S. port congestion and impacts on shipping lanes were unforeseen and contributed to higher year-over-year in-transit inventory levels,” she said, predicting that the issue could continue through the first half of the year.
While the congestion is impacting the broader retail industry, some experts suggest that the pain could be felt most in the apparel and footwear sectors, where merchandise can be heavily dependent on a seasonal cycle.
“It’s about the importance of getting products in on time. Some shippers are concerned that their lines, which might be manufactured for specific retailers, may not make it in time for the season, and they may be forced to liquidate some of that inventory,” said Joshua Brogan, associate partner in the strategic operations practice at Kearney. “The inability to plan and make sure that inventories are arriving in 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: The delivery backlogs caused by the West Coast port disruptions could create an opportunity for off-pricers — like Ross Stores Inc., for instance — to snap up orders canceled by full-price stores and sell them at favorable prices.
“We’re still seeing pretty great supply opportunities in the marketplace,” Ross CEO Barbara Rentler said during a fourth-quarter conference call with analysts this week. “The West Coast port congestion obviously has slowed down some of the receipts coming into the country, so the merchants are constantly moving and shaking based off of what’s coming in.”
She added, “In terms of the end state of availability from the disruption of the port, 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’ll be a bubble of inventory … We would expect that at some point, that would back up and that there would be an opportunity.”
As for how long the congestion will last at the U.S.’s major ports, experts suggest that companies could start to see improvements in the back half of the year. In the meantime, as they face shipping constraints, as well as a limited availability of truck drivers to haul merchandise across the country, retailers are encouraged to plan ahead of time for the summer and back-to-school seasons — and maybe as far out as the fall and the holidays.
“Retailers need to think differently about how they run their supply chains,” said Ken Cochran, senior director at Alvarez & Marsal’s consumer and retail group. “They need to push themselves to do what they might never have done before or appears unnatural. The freight space is incredibly dynamic right now, and the only way to overcome this is to get extremely creative and break the rules.”