 US importers passing higher freight costs to customers |
Source |
American Shipper |
Post Date |
03/22/2021 |
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Major US retailers and manufacturers are telling investors they¡¯re being forced to raise prices on products because of higher shipping rates and the rising costs of raw materials due to increased demand and delivery delays.
Lowe¡¯s and Home Depot, for example, said they had to raise prices on lumber and other commodities, while retailer Havertys said it¡¯s upping prices on furniture.
Supply chain disruptions are fueling price pressures, according to IHS Markit, which cites steel sheet allocations in North America, semiconductor shortages restricting global automotive production, and copper inventories at a 10-year low due to insufficient mining output in South America.
As a result, manufacturers¡¯ average input prices have increased monthly since June 2020, and increased in January at the fastest pace since May 2011. The increases were attributed mainly to increased pricing power among suppliers, shipping surges, and personal protective equipment (PPE) costs, IHS Markit said in its February monthly global Purchasing Managers¡¯ Index (PMI) report. IHS Markit is the parent company of JOC.com.
"Were seeing significant increases in the cost of our import freight and moderate pressure on domestic freight,¡± Dollar Tree CFO Kevin Wampler told analysts on the company¡¯s earnings call this week, transcribed by Seeking Alpha. ¡°We currently project $80 million to $100 million in additional costs in fiscal 2021 as a result of these market conditions."
Sustained US imports driving up transportation costs
The record flow of US imports that started in June 2020 is continuing into 2021 and adding further cost pressures for manufacturers and retailers. Although volumes may moderate a bit in early summer, imports are expected to remain at historically high levels possibly through the 2021 peak shipping season this fall.
¡°The raw material prices, most of the costs are increasing, and we dont know if weve seen the of it, as well as the transportation changes so were going to have to stay flexible and keep adjusting with them as we go through,¡± Jeff Lorberbaum, CEO of flooring manufacturer Mohawk Industries, told investors on the company¡¯s mid-February earnings call, transcribed by Seeking Alpha.
As a result, manufacturers and retailers are passing higher costs for freight and raw materials to customers. Mohawk said during its earnings call that it would increase prices due to the rising costs of materials, labor, and transportation.
Lowe¡¯s and Home Depot also noted higher costs in lumber and other commodities, which they both passed through to customers as home and construction projects increased.
¡°Theres no doubt commodity prices are on a tear right now ... Those type products, copper and wire, lumber, and all stick goods, those are priced to market by virtually everyone in the marketplace. So, we dont have a lot of anxiety around managing the commodity flows,¡± Ted Decker, COO of Home Depot, said during the company¡¯s Feb. 23rd investor call, transcribed by Seeking Alpha.
Havertys Furniture is also passing on costs to customers, citing the current freight environment. CEO Clarence Smith told investors in mid-February that a shortage of ocean containers remains a huge issue for the market and even resorted to sing some shipments by air, a much more expensive mode than ocean.
¡°We are increasing prices. We recognize that we have to recover that,¡± Smith said. ¡°Freight [rates], we think, will come back down later in the year.¡±
A few retailers have been able to mitigate some of the higher freight costs, however. Automotive parts retailer O¡¯Reilly Automotive, for example, requires international suppliers to keep products in the US.
¡°This helped us early in the pandemic, and we were very aggressive with our ordering on the onset, as sales began to tr upward,¡± CEO Greg Johnson said during the company¡¯s February earnings call, transcribed by Seeking Alpha. ¡°On the ocean freight, I dont think that weve seen at this point a meani
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