Tough year could get tougher fueled by price hikes, surcharges | Bill McLoughlin

How high is up?

That’s the question furniture importers are asking themselves in the face of the latest round of freight rate increases. Since the start of April, spot container rates from the Far East to the U.S. West Coast have risen 29% and are currently 198% higher than the same period a year ago, according to Xeneta, a leading ocean and air freight benchmarking and analytics platform.

Already this month two leading furniture suppliers, Ashley Furniture Inds. and Flexsteel, announced the imposition of surcharges to offset higher container costs. And there is every expectation that more will follow. Furniture Today has spoken to several companies that have acknowledged such hikes are under consideration and are likely in the coming weeks.

Conspiracy theories aside there are several reasons for the container rate hikes, which have been gradually creeping up since late last year as disruptions in the Red Sea diverted traffic away from the Suez Canal and low-water levels at the Panama Canal resulted in the need for many ships to sail the longer route around South America.

These diversions served to lengthen shipping times and reduce overall capacity. Add to that congestion at major ports, such as Singapore, and slower sailing speeds, and the result has been steadily rising container costs and decreasing capacity that have rendered many existing contracts moot and forced an increasing number of companies into the spot market.

These conditions have been exacerbated recently as major importers — important to remember that furniture is only one piece of the total import equation — began trying to stockpile goods in anticipation of even higher costs as the critical fourth quarter approaches. The result has been to further disrupt the balance between supply and demand, giving shippers cover to continue hiking rates.

These increases come at a particularly fragile time for U.S. furniture retailers that are facing consumer traffic levels that are reportedly at the lowest levels in recent memory. Lagging demand has challenged the industry for the past three years following a brief surge in the early days of the pandemic and has been exacerbated of late by high interest rates and a weak housing market.

The result has been strong deflationary pressure on furniture prices and higher than normal levels of discounting and promotional activity. While some retailers have reported decent sales around holiday promotional periods, this activity has often been driven by extending the holiday promotional pricing period and even deeper than traditional price cuts.

That strategy will be challenged in the coming months as the combination of stubborn inflation and the prospect of even higher container prices force manufacturers to hike prices or add surcharges to keep themselves afloat.

There is no quick or easy fix as the factors shaping market conditions are structural and not subject to short-term adjustments by individual companies or sectors. As a result, retailers are likely to find themselves squeezed at both ends as lagging consumer demand runs straight into the brick wall of rising costs for goods.

Stay tuned as Furniture Today will continue to track this situation closely.

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