RILA to FMC: Red Sea Crisis Could Incur ‘Tens of Millions of Additional Costs’
As major container shipping lines like Mediterranean Shipping Company (MSC) and Maersk spurn the conflict-ridden Red Sea and the Suez Canal, members from retail trade organizations including the Retail Industry Leaders Association (RILA) and National Retail Federation (NRF) called on the Federal Maritime Commission (FMC) to investigate surcharges instilled by the ocean carriers.
In a hearing last week, Sarah Gilmore, director of supply chain policy at RILA, told FMC members that they should more closely monitor the transparency of these fees, many of which have been imposed due to the longer transit times around Africa. Other surcharges include “war risk” premiums due to the higher risk of attacks on their vessels.
More from Sourcing Journal
Red Sea Skirmishes Won't Slow Down Heavier Flow of Cargo Into US Ports
Experts Relay Red Sea Risk to Congress as Levi's Endures Two-Week Delays
“Questions still persist about their actual correlations with costs,” Gilmore told the FMC. “Emergency surcharges are reaching over $3,000 per container. Coupled with other fees, this could result in tens of millions of additional costs for retailers if the crisis persists for six months.”
Gilmore also explained that the looming contract season, where shippers establish long-term contracts with their carriers, could be upended by localized disruption, “injecting unplanned costs into the system over the longer term.”
Jonathan Gold, the NRF’s vice president of supply chain and customs policy, repeated some of the concerns he shared at a Congressional hearing last month, highlighting the Red Sea skirmish’s potential impacts on costs for small businesses.
“We echo the comments of the letter recently sent by Reps. David Rouzer, Dusty Johnson, Colin Allred and Angie Craig, calling on the FMC to ensure any rate increases are reasonable, targeted and transparent to all parties,” said Gold.
At the hearing, Gilmore established another concern of both associations.
“The rate hikes and surcharges are not just limited to directly affected cargo,” Gilmore said. “We’re starting to see it affect the other shipping lanes too. We urge the FMC to look into that.”
Lunar New Year brings higher air freight rates as shippers rush shipments
Wednesday’s hearing was held three days ahead of the start of China’s Lunar New Year Saturday, when many factories throughout the country shuttered operations for up to two weeks through Feb. 24 as workers travel home to visit their families.
The timing of the Lunar New Year added another layer of concern for shippers, who already shared reservations about shortages of containers coming out of China and other Asian markets.
Even without the backdrop of the Red Sea disruptions, retailers and brands pull forward their shipping needs ahead of the two-week break, causing a surge in exports. This capacity crunch can lead to unavailability of containers, transportation delays and increased shipping costs.
Joseph Firrincieli, a sales supervisor at freight forwarder OEC Group, said his company saw a surge in air freight rates even sooner than usual due to the deadlines shippers have to meet. WorldACD data supports this assertion, with rates for air cargo shipments from China to North America rising by 14 percent week over week in the period of Jan. 29 to Feb. 4.
“No matter which way you look at it, the cargo will be delayed coming into the U.S., whether it’s the East Coast, the Gulf Coast or the West Coast,” said Firrincieli. “Even if it’s an East Coast shipment, and you’re sending it to the West Coast, and you’re relying on an MLB (mini land bridge) service, the rails tend to be delayed. A lot of importers have no choice but to pay the high premium of air freight to ensure it gets here in one to three days.”
Firrincieli told Sourcing Journal that OEC Group was still able to book cargo shipments out of China up to the Feb. 10 Lunar New Year start date, but that it was largely dependent on when the clients’ factories closed, and how long they expect to be closed for.
After the conclusion of the Lunar New Year, most apparel manufacturers are going to be in a big rush to design and produce goods even faster than normal to account for the longer 15-to-20-day transit times, says Pawan Joshi, executive vice president, product management and strategy at e2open.
“The net of all these things is: you need to start production earlier, which means you need to start forecasting earlier on style, color and size, and what fashion assortments will work,” Joshi said. “This means your forecasting probably becomes even more important. Forecast accuracy in apparel and footwear depending on what segment you’re looking at, is anywhere between 20 percent to 50 percent on a good day.”
As container ships continue to be rerouted around the Red Sea and shippers prep for a two-week lull out of China, Joshi highlighted that these situations and the Panama Canal restrictions further establish that disruption is the norm—and that brands must get more proactive in finding more shipping alternatives regardless of potential supply chain bottlenecks.
“There might be a case where instead of moving a product from Shanghai to Houston, that I’m going to move it from Shanghai to Long Beach and then intermodally to Houston,” said Joshi. “Knowing this as early as possible allows you to get degrees of freedom to figure out how you’re going to move freight.”
