With supply chain channels snarled by the effects of the COVID-19 pandemic, major retailers like Target Corp. and Home Depot Inc. are taking matters into their own hands, chartering ships to deliver goods in time for the important holiday season.
Retailers large and small, consumer packaged goods companies and other businesses have been impacted by COVID-related bottlenecks at the ports, manufacturing shutdowns overseas and other high costs related to transporting merchandise. Dollar Tree Inc. /zigman2/quotes/203712248/composite DLTR -3.75% , for example, said that one ship was delayed for two months after a crew member tested positive.
Major retailers with deep pockets are putting their sizeable financial resources to use to avoid a holiday season supply chain disaster — but it comes at a cost.
“This is a very expensive thing,” said Michael Zimmerman, partner at global consulting firm Kearney, who says leasing ships is a solution for now. “If you’re a mid-size retailer or emerging fashion brand, you can’t rent your own ship.”
The cost to lease a ship runs from about $1 million to $2 million per month, according to Zimmerman, plus operating costs, including the cost of renting the containers, which can run in the hundreds of dollars. The biggest retailers are using between 500 and 1,500 containers per month.
“The most important aspect of this is the capacity play rather than the savings play,” Zimmerman said.
“Yes, there is savings but you are leasing the ship for two-to-three years, so it is a significant commitment that you will need to stick to or later sublet at a loss if the market for shipping containers crashes back down.”
Still, for these eye-popping prices and a lot of risk, companies that are chartering a ship now have a say on where it’s going, giving the company the flexibility to bypass clogged ports and other systems.
“Goods have been shifting to other ports, with imports through the ports of Seattle and Tacoma up 40.6% versus 2019 and imports through East Coast ports up 36.1% in the same period,” said Panjiva, the supply chain research unit of S&P Global Market Intelligence, in a report.
Los Angeles and Long Beach are two typically popular ports. Panjiva says import growth in those ports slowed in July and August. Media reports, such as this one from the Washington Post, have included mages of record lines of ships queuing to enter those ports.
Under normal circumstances, companies pay a fraction of the cost to share a ship with other clients and lease only the space they need for the goods they’re moving. When a company ships with a carrier or other intermediary, the cost to rent a container from the origin to the final destination can run to $10,000 each.
“We… chartered our own container ship to regularly bring Target merchandise from overseas ports to the U.S. As co-managers of the ship, we can avoid delays from additional stops and steer clear of particularly backed-up ports,” the company wrote in a blog post published on its site last month.
Target is kicking off the holiday season with Target Deal Days starting on Oct. 10 .
Home Depot Inc.’s /zigman2/quotes/208081807/composite HD -2.28% Chief Operating Officer Ted Decker said the company came up with a “creative solution” to its problems with getting goods.