Weekly Editorial

Just When You Thought It Was Safe to Go Back in the Water...

Written By Rob Kirkbride, Editor-in-chief, OI Publications • July 1, 2024

The Insider_Weekly_editorial_image_7.1.2024

Just when office furniture companies are beginning to reap larger profits because of price hikes and other inflationary cost adjustments, the price to get products from here to there is skyrocketing.

Rising freight rates are a new source of concern in the global supply chain with forecasts warning that ocean cargo prices could reach $20,000 — potentially even touching the Covid-era peak of $30,000 — and stay there into 2025.

Spot ocean freight rates from Asia to the U.S. exploded between 36%-41% month over month, and ocean carriers increased additional charges known as general rate increases by roughly 140%, according to a CNBC story. These costs have taken the price of a 40-foot cargo container to about $12,000.

What does the average cost of a shipping container have to do with the office furniture industry? Plenty, since many of the components and a fair amount of office furniture sold in North America comes from Asia and Europe.

Sea-Intelligence issued a note recently forecasting that Asia-Europe spot prices could exceed $20,000, with the Red Sea crisis factored in. Houthi rebels in the Middle East have been stepping up attacks on ships recently in the Red Sea, forcing container vessels to add thousands of miles to their journey to avoid the terrorists. Alternate shipping routes around Africa not only add about 11,000 nautical miles (one to two weeks of transit time), but also add an approximate $1 million in fuel cost for each voyage.

Sea-Intelligence data estimates that if the rate paid per nautical mile reaches the same level as during the pandemic, spot rates will reach $18,900 per forty-foot container from Shanghai to Rotterdam, $21,600 per forty-foot container from Shanghai to Genoa, and $21,200 per forty-foot container on the back-haul from Rotterdam to Shanghai also is possible. On the Transpacific route (Asia to the U.S. West Coast/East Coast), the extrapolation of the maximum spot rate would be identical to the pandemic period, when some rates reached $30,000 per container, according to CNBC.

It is certainly no cheaper to ship by air. According to freight intelligence firm Xeneta, China to North America air freight spot rates increased 43%, to $4.88 per kilogram, year-on-year in May. Global air cargo spot rates were up 9% year-on-year in May, to $2.58 per kg.

It’s hard to imagine the market will absorb more price increases to cover the skyrocketing cost of shipping. Many office furniture makers have increased prices in recent years to account for inflation, but it could be hard to raise prices further. Though demand has been steady, a growing number of companies are reducing their real estate footprints, which ultimately means less furniture. It’s hard to raise prices when demand for your products is falling.

This latest shipping hiccup is sure to prompt many companies to question overseas sourcing. Many manufacturers I speak to are onshoring manufacturing and turning to suppliers closer to home, which is a good thing for our industry. It will also force domestic suppliers to be more efficient and cut costs to better compete with their Asian and European competitors.

Until the market corrects, expect a painful period for many manufacturers, especially those that rely on overseas suppliers.

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