Supply delays and rising transport prices have an effect on the furnishings leasing firm Cort
On August 12, 2019, containers will be reloaded from a truck to a cargo ship at the international freight terminal of a port in the city of Haiphong.
Nhac Nguyen | AFP | Getty Images
Furniture rental company Cort is jumping through tires to tackle supply chain delays and a sharp surge in shipping costs that it faced last year as the coronavirus pandemic hit the world.
To avoid the difficulty of finding available shipping containers to lease, it bought 100 so it could bring its sofas, beds, and bar stools to the United States. The company imports from seven countries but adds more, including Mexico, and sources more products domestically.
To get around the traffic jam in the Port of Los Angeles, Cort has reached out to other ports to bring his desks, office chairs, and bookshelves.
“I’ve never seen anything like it in my business days. Usually when there is part of the supply chain that has a problem, it is part of the supply chain. Here we’re literally looking across the board for the past few months, “said Cort Executive Vice President Mark Koepsell.
Products that took 30 to 45 days to receive now take seven to eight months, Koepsell said.
“The problems are everything from finding space on a ship coming from Asia to getting the ship across the ocean and through the port of Los Angeles, which is between seven and 14 days deeply stacked with freighters sailing along the coast “said Koepsell said.
Cort, which is owned by Berkshire Hathaway, typically stocks hundreds of millions of dollars worth of furniture at all times. High season furniture usually arrives from late March to early April.
“Every year we buy in a regular cycle that coincides, at least on the living side, with deliveries that support the moving season. And this season generally starts in March and lasts through September and October, ”said Koepsell.
This year hardly any of its 170 containers had been delivered by April.
“Trying to get a container on board has cost both more time and a lot more money than in the past,” said Koepsell. “At the beginning of June we had 20 of them in there. [By the end of July, we] I got there probably over 100 and we expect everyone to arrive by the end of August. “
Unlike a furniture retailer, Cort looks after people who are moving domestically and choose not to take all of their belongings with them, or those who are moving internationally and need temporary furnishings for a period of time or until their belongings arrive. Cort works with corporations, relocation management companies and on an individual level.
Cort didn’t disclose its annual sales, but the industry had sales of $ 5.8 billion in 2019, according to Kentley Insights’ 2021 market research report.
The company keeps its furniture in use for a few years before selling it in its check-in centers or to groups involved in supporting housing projects.
Koepsell oversees the company’s cooperation with relocation management companies at home and abroad as well as the company’s university and military service businesses.
With many people’s moving plans delayed, Cort was fortunate that peak season coincided with people’s moving plans.
While many people moved in the past year, especially young professionals, according to Cort, company-sponsored moves decreased by 40% to 60% in 2020, with the largest decrease being seen in international moves. Business is only just beginning to pick up speed.
“What would normally have happened in March, April or May has been postponed. And so the furniture arrives at the same time as the expected start of the season, so we were lucky in that regard,” said Koepsell.
But the delivery delays have meant that the company does not have the variety of choices it normally has, which limits what customers can do.
According to Everstream Analytics, the inventory is being further restricted by the scarce container availability, with ports in Asia still being overloaded and sea freight rates reaching record highs.
According to Koepsell, container shortages are in part due to the downsizing that is causing them not to be returned. Even if there were openings on ships that Cort can use, there were no containers available on those ships for the company to rent.
Shipping companies have tried to alleviate the bottlenecks by bringing containers back to Asia faster, and that often means they are empty so they can bring finished products back to the US. That said, that means American raw materials, some of which are essential to making furniture, don’t get shipped from the U.S. to factories overseas – further disrupting the supply chain.
The costs of shipping containers overseas have also skyrocketed.
“We’ve paid maybe $ 1,500 per container in the past to get from Asia to Los Angeles. That price is now up to $ 17,000, and if you’re in a hurry, add another $ 3,000 to $ 5,000,” said Coepsell.
“You can avoid the delays by paying exorbitant prices. I mean, we’ve heard of containers that cost $ 30,000 to ship for someone who needs them in four weeks.”
To offset inflation, Cort raised the prices of its products without knowing how long the cost increases will last.
At up to $ 20,000 for a container, the cost of a sofa increases by $ 200, Koepsell said.
“I’m not sure if it’s temporary or permanent. But I don’t think it will ever go back to where it was.
Big Box Dealer
As the pandemic broke out, the furniture industry saw increasing demand from consumers who were stuck at home and decided to renovate or improve their homes. Many of these consumers took advantage of retailers like Wayfair as well as large retailers like Costco, Walmart and Target, which resulted in increased competition for companies like Cort.
“Much of the production was diverted to these groups, and even though we had contracts, it was difficult to get the full engagement we were promised. This is the case with long-term providers – they just had no capacity and they were also going through their own problems dealing with Covid in their countries, “Koepsell said.
These retailers picked up more of the furniture shipments while they were restocking. As a result, furniture shipping increased by a factor of 300, although orders only increased by 25%.
“In order for these companies to deliver the promised level of fulfillment, they are among the early buyers and have essentially taken over most of the production from the Asian countries … from June to July 2020 until now to stock their warehouses. “, Said Köpsell. There is some overlap between Cort and these retailers – in some cases the company buys products from manufacturers who also sell to large retailers.
Most of the goods Cort sources from Asia come from China and Vietnam, which are experiencing a resurgence in Covid cases, which could lead to further product delays. The increase in infections is mainly due to the spread of the highly contagious Delta variant and has led to further restrictions that limit or shut down factory production.
While some factories in Vietnam have resumed operations, most remain closed as restrictions require factories to ensure workers in the factories can work, eat, sleep and isolate themselves from the public, said Mirko Woitzik, senior manager for Risk Intelligence solutions at Everstream Analytics. Aside from the largest companies, most factories do not seem to be able to do this, which significantly reduces capacity.
“I don’t see things getting better, especially in Vietnam, but also in Malaysia, as if you just look at the Covid-19 cases,” said Neza Kricaj, advisor for intelligence solutions at Everstream Analytics
Malaysia’s toughest lockdown restrictions ended in mid-July, but the ongoing Covid restrictions prevent manufacturing sectors from reaching their full capacity.
The congestion of the ports in Malaysia also continues as container ships wait an average of two days.
Last week, Port Cat Lai in Vietnam stopped receiving some imports until at least Monday due to a container jam due to a shortage of employees and trucks.
“Vietnam’s ports are facing unprecedented congestion as companies that have been closed for weeks fail to pick up import containers at the ports, resulting in huge backlogs. In particular, the Cat Lai port in Ho Chi Minh City has suffered disruptions due to labor shortages, causing port operators to stop accepting certain imported shipments by August 16, “Woitzik said.
“Getting household goods around the world is extremely difficult. It used to take a maximum of six to eight weeks. And now we’re talking to people who are four to six months old with no idea where the product is,” said Koepsell .
It remains to be seen how long these supply chain disruptions will last.
“At some point the supply chain will return to some sort of equilibrium. Will she return to the prices we had in 2019? Probably not. significantly less than the increases we saw today, “said Koepsell.