Retailers Pay More to Get Cargo (No Guarantee)

By: Stephanie Clifford, The New York Times

Commentary:

We have all read with interest now the challenges in the maritime industry at a time when the economy is truly just now starting to get back on its feet. It seems to be taking two steps forward and one step back. This uncertainty is tough on supply chain managers. But, here is a little “lofty thinking” to throw at the situation that may actually create a positive situation for US manufacturers.

As we look at charts that track volume activity in the US economy (almost regardless of what the chart actually is tracking) we see a similar pattern: volume in 2010 is improving, but is still far below the level of activity we had in the pre-recession period of 2005-2007. So, with volumes at extreme lows, should it be keeping us up at night to know that the cost for a container to ship from China to the US has gone up from $871 to $2,624? Absolutely. We can blame 10% growth rates in China and 8% growth rates in India. Russia, Brazil, Germany, Australia, Indonesia, Singapore, etc. for the shortage because their economies are starting to hit rapid growth rates. And, as the article mentioned, the maritime industry has gone through structural capacity losses which will linger long after the recovery is strong and volumes are looking even slightly like pre-recession levels.

These observations are important because they start to build a stronger case for near-shoring. Goods sourced in the US, Canada, or Mexico will not be subject to high container rates, fluctuating fuel costs, and the uncertainty that comes with inbounding cargo from overseas can be reduced with a comprehensive near-sourcing strategy. Labor rates in parts of Asia are very difficult to overcome. But, if supply chain managers are able to calculate with some accuracy the “total landed cost” of moving a product to market in the US, they might be considering some changes in how much they source abroad and how much they get out of their own backyard. We may not be seeing too many near-shoring moves today – but if the current cost trends continue, they won’t be too far around the corner.

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