In the past year, the cost of shipping a container from China to the US West Coast has risen by over 156 percent (Washington Post). This has led nearly all of the world’s leading international shipping lines to increase rates as well as impose port congestion / value-added surcharges ranging as high as $5,000.
This is yet another way the COVID-19 pandemic continues to turn the retail landscape on its head. The resulting fulfillment delays, supply chain disruptions, and additional costs can pose a major problem for e-commerce sellers caught unprepared.
No matter the size or nature of your online sales business, you need to understand the current challenges facing international shipping and be prepared to assess their impact on your supply chain, logistics, and profit margins – both now and into the future.
Multiple Factors Are Stifling International Freight
The economic impacts of the COVID-19 pandemic continue to hit international shipping lanes hard. There is a perfect storm that continues to swirl over the industry, which is having negative effects on supply chains and the costs of goods worldwide.
- A pandemic import boom – As the COVID-19 pandemic led to more and more people to stay (and work from) home, online retail surged. This spike in purchasing led to increased demand for heavily imported products. China, in particular, saw huge spikes in exports of PPE, consumer electronics, bicycles, furniture, clothing, and other goods relevant to a shift to both play- and work-from-home living. In turn, this unexpected surge has quickly overwhelmed the international trade infrastructure in a way that it has yet to fully recover from.
- Port congestion – As more and more cargo containers arrive stateside from China and other international points of origin, dock space has become extremely limited. This has forced scores of fully-loaded cargo ships to sit anchored outside some of the nation’s largest ports.
- Container supply issues – In many cases, just finding a shipping container to fill is proving to be a challenge in and of itself. Due to pandemic trade restrictions and imbalances, containers that have been emptied stateside have sat unfilled and unable to be returned back to their ports of origin. Even bolstered production of new containers has not remedied the issue. Demand and costs for available containers continue to rise. Projections are that container supply will remain an issue into next year. The fewer available containers, the slower goods will flow through international shipping channels.
- Supply chain stress – All of these factors amplify production, labor, and supply shortages that are hampering supply chains across a wide swath of industries. Outbreaks, port closures, container shortages, and increased competition for materials and components are driving up costs and fulfillment times.
Considering the complex and multifaceted nature of this container shipping issue, it is unlikely to resolve itself any time soon. As such, you need to be proactive in assessing its impact on your business and the retail landscape as a whole.
Container Shipping Bottlenecks Stoking Inflation Fears and Price Increases for Businesses and Consumers
While the economic recovery is giving customers increased buying power and purchasing intent, prices are going up and inflation is becoming a real concern. The increased cost of importing goods and components from overseas is right at the center of it all. Just as profit margins are tightening for port operators, they will likely continue to be squeezed all the way through the supply chain to retailers as well.
This will have serious implications for how you will have to plan for your inventory needs, as well as how you price your listings. There are several ways you may want to attempt to mitigate the negative impacts of the current container shipping delays will have now and going forward:
- Consider increasing your inventory on hand – While there are typically negative costs associated with storing too much inventory in your warehouse, they may be lessened or nullified if obtaining a regular stream of inventory is becoming too challenging and/or costly. For the short-term, you may find that it is more cost efficient to acquire supply when you can, rather than be forced to pay increased fees and surcharges from multiple, smaller orders.
- Adjust your predictive purchasing thresholds – Sellercloud allows users to avoid costly out-of-stocks and overselling merchandise with our low stock alert and predictive purchasing features. That said, the turnaround time and costs for reorders may not be the same as when you last set your inventory level thresholds.
- Pay attention to the calendar – There is a risk that shortages caused by the back-to-school and holiday seasons may put additional short-term strain on your ability to keep enough stock on hand to fulfill orders. If these are particularly important sales stretches for your e-commerce business, you may need to order more and sooner than usual to avoid fulfillment bottlenecks.
- Increase catalog prices as needed – There is no shame in passing on your increased landed costs to your customers. In most cases, increasing prices to protect your margins is simply good business.
Monitor Your Cost of Goods Sold (COGS) Metrics to Assess Container Shipping Bottlenecks on Your Bottom Line
Whether you rely on imported goods, packaging, or parts for your e-commerce business directly or indirectly, the ongoing container shipping crisis will likely impact your cost of doing business. The key is knowing how much of an impact these trade challenges are actually having on your bottom line. After all, how can you make profit-based decisions without the actual data to back them up?
Sellercloud’s container workflow features will help you optimize your container imports and exports. Our tools give you the ability to fill, receive, and track your container-based purchase orders.
Profit and Loss (P&L) can be tracked on both an order-by-order and product-by-product basis. This gives you the ability to not only monitor your profit margins, but also gives you the opportunity to dial in your prices to target your ideal profit margins and account for logistical fluctuations like the current container shipping struggles.
Furthermore, our cost of goods sold (COGS) and inventory value reporting features allow you to access up-to-date data on the landed costs for every item you sell and wherever you sell it. For example, monitoring fluctuations in average cost can help surface how factors like increased freight and shipping rates are affecting your COGS.
In particular, our weighted average cost calculations give you the ability to frame your average costs in relation to your inventory quantities on hand. To determine this figure, the total cost of your current stock for a particular product is divided by the number of units you are currently holding. This quantity consideration allows weighted average cost data to go beyond simple average cost figures to provide a more complete picture of your current inventory value.
Ultimately COGS figures like these will prove helpful in adjusting catalog and wholesale prices for customers, as well as assessing the cost effectiveness of your supply chain partners.
Omnichannel e-commerce is full of challenges, but having the right tools can help you make the best adjustments and decisions regardless of the current retail climate. Contact us directly for a free demo of our platform’s robust features and integrations. You can be sure to have the support you need so your online sales can continue to grow, even in uncertain times like these.
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