HIGH POINT – Conflict in the Red Sea has spawned a crisis, or at least a major headache (which could get worse), for container freight importers across all industries. The furniture industry is no exception.
Spot container rates have risen an average of 44% since Houthi militants from Yemen began attacking container ships traveling through the Suez Canal three weeks ago as a response to the Israel-Palestine conflict. To cope, ocean carriers began diverting ships to travel around the horn of Africa through the Cape of Good Hope, which adds around 14 extra days to a ship’s journey, as well as increasing costs.
The issue is being compounded by a months-long drought in the Panama Canal, which has provoked carriers to redirect freight over to the Suez, for it only to be diverted again.
U.S. and U.K. airstrikes on militants haven’t yet made the Red Sea safer from shipping, analysts say. The conflict could continue for the foreseeable future, potentially also affecting new contract rates, the bulk of which are negotiated and signed in March and April.
In the furniture world, some importers seem to be significantly affected, while others haven’t seen too much of an impact. East Coast importers seem to be bearing the brunt of the pain, as West Coast importers are able to avoid the Suez.
East Coast importer BDI is one to report a severe impact, substantial enough to incentivize the company to ship some product over the Pacific instead and then rail across the U.S. to the company’s East Coast facilities.
“It’s challenging, and it came out of nowhere,” said Hanna Hajjar, vice president of operations. “We haven’t used the West Coast in 20 years, but right now because of these issues we’re starting to send some of our freight through there.”
Specifically, Hajjar says the company is splitting its container traffic evenly, with 50% going to each coast. The goal is to test out the West Coast.
“Our freight costs have shot up significantly,” he continued. “Probably more than double from November, and that’s to the East Coast. It’s a combination of issues. First, the Panama drought and then the Suez conflict. And around Lunar New Year, rates typically go up anyway. Demand is high for bookings, and operators are doing blank sailings so they can charge more.”
BDI sources most of its product from China, but also gets product from Vietnam and Turkey. The company only plays the spot market.
Fellow East Coast importer Bernards Furniture hasn’t faced a steep challenge yet, but the company is concerned about product delays for Premarket.
“We’re talking about this issue every day,” said Micah Swick, president. “It’s that big of a deal. I just got back from an Asia. The real impact on us is minimal. We have a contract with Evergreen (a Taiwanese ocean shipper), and we have some extended delivery dates. But our cost has remained consistent.
“But for Premarket, there was no chance of me getting my samples in time,” he continued. “We are going to ship samples to the West Coast and then team-trucking them (when two drivers take turns hauling freight). This represents a 5x increase in costs to get our product there.”
At Hooker Furnishings, which primarily has contracted rates, the issue isn’t too severe. But it’s still being felt.
“When there’s turmoil, these companies can charge you without really letting you know what they’re going to charge you,” CEO Jeremy Hoff said in a webinar this week with WaterTower Research. “Right now the only number we’ve heard is about $500 extra cost for a container to go around Africa. We’re not too nervous about it yet as we’re paying about $3,800 per container, which is still very low compared to the pandemic. It’s a couple weeks’ extra delay on product.”
The issue seems less severe for West Coast importers, which can avoid the Suez as their freight instead flows over the Pacific. Still, there are problems with both delays and higher rates.
“We are getting freight increase notices from everyone,” said Pat Hayes, vice president of product development for California-based Martin Furniture. “Delays we haven’t experienced yet, but rates are rising. Some of our customers on the East Coast could be affected as they handle their own shipping.
“The only thing we’ve had to do was try to move up some shipping dates before rates increase,” he continued. “Factories are under pressure to get as much out they can before Lunar New Year, and customers are eager to get shipped to avoid new rates.”
Fellow West Coast importer A-America is seeing increases, too, as well as delays.
“We’re seeing delays and rate hikes,” said President Christian Rohrbach, who does both contracted and spot freight. “We don’t ship our stuff through those areas, but the whole industry is affected. Something like 10% to 15% of container traffic goes through the area. Delays are in the weeks’ range, not months, which is a plus.
“The big question is: Is this temporary? Will this be over quick? It’s a giant mess,” he continued. “I’m not very familiar with the region. It could be very challenging for this year. I’m hoping there’s a resolution in the first quarter. I do think they’re going to solve this. And once the industry adapts, it won’t be as bad with delays, but I could be wrong.”
Like Martin Furniture, another West Coast importer, Legends Home, hasn’t seen delays. But there is concern.
“We’ve seen rate hikes even though it’s not the shipping lane we use,” said Tim Donk, vice president of product. “Anytime the maritime players can increase rates, they’ll do it. If things get rerouted, we’ll see delays, but I haven’t seen that yet.
“I am concerned,” he continued. “I’d rather have a rate increase than a delay. I’m usually not a negative talker, but this escalation, coupled with an election year, doesn’t sound good. It makes me glad we have a domestic factory.”
Let me know if and how this conflict is affecting your company. Email me at rdalheim@furnituretoday.com.