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Big retailers book pricey private cargo ships in holiday scramble

Walmart, Home Depot, Ikea, and any retailer who can pay are making the pricey arrangements.
Image: A Wal-Mart Stores Inc. package is unloaded from a trailer to be sorted for final delivery at a FedEx Corp. Ground hub in Hagerstown, Md.
A Wal-Mart Stores Inc. package is unloaded from a trailer to be sorted for final delivery at a FedEx Corp. Ground hub in Hagerstown, Md.Andrew Harrer / Bloomberg via Getty Images file

Major retailers have disclosed they’re resorting to the expensive and unprecedented moves forced by the pandemic’s unrelenting supply chain snarls by chartering private cargo vessels and buying their own shipping containers to keep goods produced overseas flowing ahead of the busy holiday season.

Chartering a vessel can cost in the range of $40,000 per day for a vessel carrying 3,000 20-foot containers, according to the Port of Los Angeles. This day rate adds up to more than the record high costs for a typical 40-foot high container, which is now more than $6,500 each, according to maritime research firm Drewry Shipping Consultants. Retailers then use contracted and nimble logistics management companies to negotiate with jammed-up ports to secure small windows of time to unload.

As competition heats up against e-commerce companies, some of the country’s largest retailers are willing to pay to meet consumer expectations for full shelves. Walmart and Home Depot announced they were chartering private vessels this week in earnings calls. Ikea confirmed to NBC News it is also shipping goods over private vessels, along with purchasing its own shipping containers, another costly and unusual move brought about by short supply.

“Out-of-stocks in certain general merchandise categories are running above normal, given strong sales and supply constraints,” said Brett Biggs, CFO of Walmart, in an earnings call Tuesday. “Our merchants continue to take steps to mitigate challenges, including adding extra lead time to orders and chartering vessels specifically for Walmart goods.”

Edward Decker, COO of Home Depot, told investors on Tuesday that the company’s stock levels are “not where we want them to be” but the company has “leveraged our scale and flexibility to arrange for several container vessels for exclusive use.”

Cargo companies first responded to the surging demand for vessels at the beginning of the pandemic by cutting shipping capacity as consumption slowed. That left them in a capacity bind when consumer demand came roaring back stronger than ever. Covid restrictions and worker shortages at shipping facilities and a shortage of truck drivers to pick up containers have only added on to the pile-up. Meanwhile, covid port restrictions have limited the number of empty containers going back to Asia to be filled.

Port of Los Angeles executive director Gene Seroka said the pandemic-based consumer buying surge is unparalleled.

“This is a worldwide phenomenon,” said Seroka. “We’ve got 34 ships in the brig water waiting to come into the ports of LA and Long Beach and another 20 over the next few days. We’ve been running at high velocity since June and July of last year.”

Until the delta surge, consumers have been feeling more confident as vaccination rates increased, schools reopened and workers were called back to the office. While this would traditionally be good news, U.S. consumer demand has exceeded the availability of inventory posing a challenge to brick-and-mortar retailers, said Brett Rose, CEO of United National Consumer Suppliers, a retail logistics company.

“They need to fill the shelf or lose business,” said Rose. “Empty shelves are going to drive customers away and toward e-commerce.”

Reservations don’t come cheap. Matson, an American transportation services company, told investors in July that it expanded its expedited ocean service between China and the U.S. West Coast in response to high demand from existing retail customers. Tim Seifert, a spokesperson for the German transportation company Hapag-Lloyd AG, told NBC News in an email that charter rates “have reached an extraordinarily high level.”

But retailers, flush with cash from a consumer spree pumped by stimulus checks and facing mounting competition from online companies, are willing to pay the price to cut the line at backlogged ports. This puts larger retailers at “a competitive advantage versus smaller companies who cannot fill entire vessels on their own,” said Lars Jensen, CEO of the shipping advisory firm Vespucci Maritime, in an email.

Glenn Koepke, senior vice president of customer success with the supply chain software company FourKites, said small businesses are “just trying to get through this time and wait for the curve to go down.”

Shoppers are encouraged to snap up products when they see a price they are willing to pay for an item, said Rose.

Both regular and the promotional prices have been going up as a result of the inventory crunch, said Nikki Baird, vice president of retail innovation with the retail technology provider Aptos.

“As we get closer to September, with less inventory on the shelves there will be fewer promotions or clearance deals, so it may not be sticker shock that hits consumers so much as ‘Hey, where did all the clearance go?’” said Baird. “This year, there just won’t be as much. I’ve already seen retailers roll out Halloween costumes and decorations – we’re barely halfway through the typical back to school season, so that’s a sure sign that inventory is running low.”