Retailers likely to take a hit from Suez, Panama disruptions

Delays and higher freight costs pose earnings risk for U.S., European companies importing from Asia.

Shipping disruptions at the Suez and Panama Canals may end up costing retailers big, according to a report from Moody’s Investors Service.

Since mid-December, attacks in the Red Sea have caused delays and disruptions through the Suez Canal, affecting trade routes between Asia and the West, particularly Europe and U.S. East Coast ports. At the same time, severe drought conditions in the Panama Canal have reduced transit times in the Americas, adding to global supply chain woes.

Conditions in both areas have led to reduced cargo volume, delivery delays, and higher freight costs, all of which could take a bite out of retailers’ profitability in the months ahead. European retail and apparel companies that rely on maritime Asian imports are most at risk, but extended delays could affect companies that rely on timely deliveries of seasonal goods in both the U.S. and Europe, according to the report.

Rising freight rates are among the biggest concerns. Container spot prices have risen more than 114% since last December and are up more than 130% compared to 2019, according to the Moody’s report. Those higher costs could negatively affect retailers’ profits by the end of this year.

“Prices also reflect recent seasonal volume increases ahead of the Chinese New Year as importers try to secure product ahead of slower manufacturing activity,” the report’s authors wrote. “Should freight rates remain elevated, retailers will be forced to absorb associated higher costs—which is a looming risk because contract rates are typically reset annually.”

The situation is less dire for U.S.-based retailers, who can divert deliveries from the East and Gulf coasts—the port of call for ships through the Suez and Panama Canals—to West Coast ports. Many retailers pivoted in the reverse direction two years ago amid dockworker contract negotiations at West Coast ports “without pushing costs much higher,” according to the report.

Still, the risk remains high for all retailers as long as the delays continue.

“The longer this shipping crisis persists, the greater the potential earnings hit that retailers importing from Asia will face,” the authors wrote. “Higher inventory levels and lower consumer demand will buffer some of the immediate pain despite some added costs relative to rerouting.”

Source: Velocity

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