A Home Depot location in Encinitas, California.
Mike Blake | Reuters
Home Depot is one of the largest importers in the country. However, with congested ports, container shortages, and Covid-19 outbreaks slowing shipping, the company made a decision: it was time to get their own boat.
“We have a ship that is entirely ours and it’s 100% dedicated to Home Depot,” said Chief Operating Officer Ted Decker in an interview. It is the first time the company has taken such a step.
Decker said the contracted ship, scheduled to go live next month, is just one example of the unusual measures the company is taking in addressing challenges that have rebounded across the global supply chain.
On rare occasions, Home Depot has also airlifted power tools, faucets, electrical components, fasteners, and other “smaller, higher-value items”, he said. In other cases, it has chosen to buy items on the spot market – although it can cost up to four times more than contractually agreed prices.
Other retailers have also had to go to great lengths to stock stores and distribution centers and keep pace with consumer demand as the economy recovers from the pandemic. For shoppers, the logistical problems of retailers play out in the form of sell-offs, long delays before a purchase arrives, and higher prices.
The global shipping issue comes at an important time for the industry, said Jonathan Gold, vice president of supply chain and customs policies for the National Retail Federation, a trade group. Retailers go into the high season for sending Christmas items, which usually starts in August.
“Right now, are you all trying to figure out how we can mitigate this risk to make sure we get the product here in time for the Christmas sales start?” He said. “That could mean postponing the launch time for your product, which could create additional congestion and delays.”
A lot of problems
More than a year after the pandemic, Gold said retailers continue to play around with a number of issues. He said businesses face these problems regardless of the size or type of goods they sell.
“We see [issues with] everything from clothing to shoes to furniture, handbags, toys, consumer goods and electronics, “he said.
Increasing demand has added to the problem, Gold said, as people spent money on goods rather than services like eating out and traveling while stuck at home for months.
Home Depot was taken by surprise, Decker said, when consumer appetites for home improvement increased during the pandemic. The company has shown great sales growth quarter after quarter. This continued into the first fiscal quarter, with the company’s sales in the same business increasing 31% year over year.
A Covid-19 outbreak in southern China is cause for concern. As the Chinese authorities try to stop the spread, they have limited the number of ships that can reach ports in the main export hub. This forces some ships to skip the harbors or anchor offshore while the boats wait to dock. Large shipping companies like Maersk have warned customers of delays. It has caused the largest backlog since at least 2019, according to a Reuters report.
The problems have also increased costs. Nathan Resnick, CEO of Sourcify, a company that connects businesses with manufacturers, said freight rates have “increased significantly”. In an interview with CNBC’s “The Exchange” earlier this week, he said the cost of a 40-foot container had increased over 150% on the west coast and increased even more on the east coast.
He estimated that companies may need to raise prices between 5% and 20% to offset this increase. “Much of that cost can be passed on to consumers who may face higher prices this holiday season,” he said.
‘Up to the C-Suite’
Gold said that finding faster, more efficient ways to move goods around the world has become an urgent priority since the pandemic.
“This has really moved up to the C-suite level when it comes to how people are mitigating the ongoing challenges they are currently facing,” he said.
Strategies executives are exploring include diversifying supply chains by importing materials and goods from countries outside of Asia or closer to the US, adding air freight, and placing orders even earlier, according to Gold.
For companies like Home Depot, size is a competitive advantage, Decker said. It is the third largest US importer of sea containers according to the latest annual ranking by the Journal of Commerce, a magazine and website that covers world 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 solid, contracted capacity that our suppliers have largely met,” he said. “[It’s] long-term thinking: “Covid doesn’t last forever, so make your best customers happy.” “