Rent-a-ship: Costco rents ships for urgent deliveries

Add Costco Wholesale Corp. to the list of desperate retailers renting entire ships to bypass clogged shipping networks and avoid stockouts of popular items as the Christmas shopping season approaches.

The Issaquah, Wash., Based company chartered three small ocean-going vessels for a year and leased several thousand containers to transport export cargo from Asia to the United States and Canada, said Thursday. CFO Richard Galanti on the fourth quarter earnings call with analysts.

The ships can carry 800 to 1,000 containers and will each make approximately 10 trips during their one-year rental period. Their capacity is low compared to Costco’s overall import volume, but reflects the extreme tension in the container shipping market and delays that have more than doubled delivery times for importers based on domestic destination. Major shipping lines are unable to meet their commitments, even for customers as large as Costco (NASDAQ: COST), as ports and channel partners are overwhelmed with cargo volumes, forcing ships to wait in line. sea ​​up to two weeks in the main ports.

“Containers, trucks and drivers all impact the timing of deliveries and higher transportation costs. Despite all of these issues, we continue to work to mitigate cost increases in a number of ways and maintain and / or mitigate our price increases passed on to members, ”said Costco’s CFO.

Home Depot (NYSE: HD), Walmart (NYSE: WMT) and Ikea have previously secured long-term ship charters to bypass oceanic delays, which continue to deteriorate.

More than 60 container ships are currently stationed outside the ports of Los Angeles and Long Beach. Meanwhile, the reliability of schedules on trans-Pacific trade to the west coast of the United States fell to an all-time high of 33.6% in August, according to Sea-Intelligence data released on Monday. On-time performance fell to 9.9%, the first time this performance metric has fallen below 10% since the company started compiling data ten years ago.

Costco officials declined to provide details on who manages ships on their behalf or arranges to access busy marine terminals, or which ports are used.

Taking control of its own ships is one of the many emergency measures Costco is implementing to minimize disruption to the supply chain. It also orders earlier, increases inventory, diversifies its supplier base and product line, and passes increased transportation costs on to its customers.

Galanti said Costco is experiencing significant inflation associated with delays at international and domestic ports; shortage of containers; COVID-related slowdowns in factories and logistics hubs; shortages of raw materials, components and ingredients; shortage of trucks and drivers; as well as higher labor costs. Packaging is also difficult to secure, and many suppliers require longer lead times to fulfill orders.

Furniture deliveries, for example, take 16 to 18 weeks, compared to eight to 12 weeks before the pandemic. Shipping delays, combined with higher exchange rates, increased the cost of some imports, such as cheese from Europe and some clothing items, by 3-10%. And the semiconductor shortage has impacted sales of computers, tablets, video games, and home appliances.

Meanwhile, Costco pays more for many products because the inputs needed to manufacture them are more expensive. Limited availability of pulp has pushed up the price of paper products by 4-8%. The prices of garbage bags, zipper bags, pet products, plastic tableware and plastic wrap have also increased because manufacturers struggle to get enough plastic resins, while the prices of the aluminum foil and canned beverages increased by about 4% to 6% due to aluminum shortage. The prices of basic commodities such as petroleum, coffee and nuts are at their highest for five years. Inflation for fresh food products, such as meat, is between the middle and high numbers.

The retailer is limiting purchases of key items such as toilet paper, paper towels, certain types of bottled water and high-demand cleaning supplies to avoid hoarding as stocks dwindle, Galanti said. Costco, like many retailers struggling with year-round supply chain friction, has ordered commodities, toys and Christmas items much earlier than normal to ensure products arrive. on your mind.

Overall, Costco pays 3.5-4.5% more for merchandise than it did a year ago.

Galanti noted that Costco has more space to store inventory after last year’s acquisition of Innovel Solutions, a third-party logistics provider that for many years provided the delivery of bulky and bulky products for Sears and d ‘other companies. However, most products turn quickly and are not stored for long periods of time, he added.

Despite product and transportation inflation, Costco announced a 17.5% increase in net sales to $ 61.4 billion and a $ 280 million increase in net profit to $ 1.67 billion , from one year to the next.

Click here for more American Shipper / FreightWaves Stories by Eric Kulisch.


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