When the British built the Suez Canal in 1859, no one could have imagined that this vital facilitator of trade between the rest of the Empire and India would 152 years later be a cornerstone of a truly global economy, facilitating the passage of nearly 100X tonnage of the original vessels and now responsible for the passage of nearly 15% of ALL global trade.
As the world knows by now, passage through this critical trade route was halted last week as the container ship Ever Given ran aground, spawning a million memes and late-night talk show punch lines. Those who probably weren’t laughing? Ecommerce business owners. As these companies think ahead to their buying seasons and busy periods (three words: Amazon Prime Day), the concerns are real.
At Yardline, we’ve been following the Ever Given situation and the potential impact it will have on marketplace and platform sellers. Here are three things to keep in mind as the impact of this event unfolds and four action items you can take NOW and on a go-forward basis to minimize any negative outcomes for your ecommerce business.
What You Can Expect:
1. Disruption and increased congestion at east coast ports of entry for the rest of Q2. The over 450 ships that were queued up to transit the canal over the past week will start moving in earnest on April 5th, but they will flood ports of entry in quick succession over the next 2-3 weeks. Bad situations at already extremely taxed ports due to the COVID-19 pandemic could be further exacerbated.
2. Shipping delays to trickle through supply chains through Q3 or Q4. With only a fixed number of container ships available to carry any available cargo, capacity constraints are bound to occur. In order to absorb this interruption of the flow of shipments across markets, ecommerce businesses (and their customers) should expect longer than expected delivery times, particularly for orders that are placed now.
3. Higher freight costs. While traffic through the Canal was halted by the Ever Given, the impacts from the stoppage cost to the global company kept going – at the pace of $400 MILLION per HOUR. An already stressed ecosystem of port operators, shipping lines, and global freight carriers will need to bear these unexpected costs stemming from disruption and uncertainty – costs that will be passed on down the supply chain to the retailers and ecommerce business owners.
What You Can Do:
1. Book shipments NOW (or as early as is feasible for your business and cash flow). Once space is reserved, you not only lock in pricing, but you also lock in your supply (barring another Ever Given episode). Start thinking now about demand planning for Q3, Q4, and the holiday season. Even if sail dates are months off, reserve what you must now to meet your needs.
2. Diversify your freight forwarders and if at all possible, your supplier base. If you are buying goods from China, are there sourcing options in other markets, like Bangladesh, that can accommodate your needs for an acceptable increase in the cost of goods and a lower bottom line? Taking a short-term hit to your profit may be preferable to having a bunch of stock-outs on Amazon Prime Day or Cyber Monday.
3. Build higher inventory levels in-country using 3PLs (third-party logistics). As is the case with diversifying your supplier base, utilizing more 3PLs to ensure that your orders arrive on time may also have a short-term impact on your net profit. However, this short-term trade-off of sacrificing near-term profits may be a better long-term strategy that will help you retain satisfied customers down the road.
4. Manage your cash flow. Higher shipping fees, increased inventory carrying costs, and potential hits to your margins all have implications on your P&L. To manage these uncertainties, you may need to supplement your cash flow over the short term. Make sure there is a step in your supply chain mitigation strategy to review your capital requirements.
At Yardline, we are experts in funding investments in inventory – whether it is incremental stock to take advantage of market demand or hedging against difficult head-winds in your supply chain. Apply for funding today to see how we can help provide the right level of growth capital and expertise to tighten your operations, navigate supply chain issues, and more.