Home Depot, hoping to sidestep a global shipping crisis, has contracted its own ship to transport its goods.
The home-improvement store is one of many retailers grappling with shipping delays and rising costs caused by supply-chain problems. According to data from the Journal of Commerce, cited by CNBC, Home Depot is the third-largest importer by sea freight in the US.
“We have a ship that’s solely going to be ours,” Home Depot president and COO Ted Decker said in an interview with CNBC. “It’s just going to go back and forth with 100% dedicated to Home Depot.”
A breakdown in the freight supply chain, created by falling demand in the first half of 2020 followed by a surge at the end of the year, has led to delays, port traffic jams, and blockages. A lack of containers and dock workers is making this worse.
For retailers, this means a risk of low stock, especially as we approach the holiday season.
“Right now, they are all trying to figure out ‘How do we mitigate that risk to make sure that we’ve got the product here in time for when those holiday season sales start?'” Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, told CNBC.
“That could mean moving up timing for when you bring your product in, which could further lead to additional congestion and delays,” he said.
Experts say that this crisis will also lead to higher costs for customers, as retailers hike the prices to recoup the cost of shipping, which in some cases is ten times more than before the pandemic.
Clorox, Coca-Cola, Procter & Gamble, and General Mills are among major brands to have announced recent price hikes.
Toys and cheap furniture are among consumer goods that could get more expensive in the coming months as retailers continue to grapple with surging shipping costs.
According to experts quoted in a Bloomberg report, low-cost and bulky goods are more vulnerable to price hikes: They take up more room on a shipping container and have thinner margins to absorb rising costs.
Gary Grant, founder of UK toy shop The Entertainer, told Bloomberg that in his 40 years in the industry he has “never known such challenging conditions from the point of view of pricing.”
Grant said that The Entertainer has had to stop selling some items, including a giant teddy bear imported from China, because it would have to double the price for shoppers to make up for higher freight costs.
“If they are bulky products it means you can’t get very many in the container and that will have a significant impact on the landed price of the goods,” he told Bloomberg.
Low-cost furniture makers and sellers such as Wayfair or Ikea could also be hit.
Alan Murphy, the CEO of a consultancy company in Copenhagen called Sea-Intelligence, said that the cost of shipping is now making up about 62% of the retail value of some items sold by low-cost furniture makers.
“You simply can’t survive on this,” he told Bloomberg. “Someone is bleeding very hard.”
As reported by Insider’s Rachel Premack, this is because of a breakdown in the freight supply chain. Demand dried up in the first half of 2020 and then came back at the end of the year, leading to port traffic jams and blockages. A lack of containers and dock workers has made it worse.
Many brands are now scrambling to find a space on a ship, and are being forced to pay top dollar for it, Premack reported, using Nike as an example. According to shipping expert Simon Sundboell from eeSea, Nike would have paid $2,000 for a 40-foot container pre-pandemic. Today, it could be paying as much as $20,000 for that same-sized vessel, Sundboell said.
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It’s up to the port to help get consumers the items they ordered and keep global trade running smoothly.
I went behind the scenes in the controlled chaos of the Port of New York and New Jersey. Here’s what I saw.
It all starts with a customer. A consumer business on one side of the world buys a product that’s built on the other.
One way to transport those products is via ocean shipping. Goods are put into a container that’s then loaded onto an ocean-faring ship and sent across the globe.
Cargo volumes in 2020 actually started off worse than 2019 by a small variance but then rapidly worsened in the early months of the pandemic. In August, however, volumes jumped and the port quickly outpaced its 2019 volume from August through December.
A total of five months in 2020 saw what is normally eight months’ worth of volume.
A ship’s capacity is measured in 20-foot-equivalent units, or TEUs. One 20-foot container equals one TEU while a larger 40-foot container would be two TEUs.
The Port of New York and New Jersey handled 7.5 million TEUs in 2020.
Containerized shipping was actually created at the Port of New York and New Jersey in 1956. Before that, goods were offloaded onto trucks and driven long distances across the US.
Now, one ship can visit multiple ports, picking up and dropping off containers as it goes.
Consolidation in the ocean shipping industry has resulted in fewer companies. Common names at this port are Maersk, CMA CGM, and Ocean Network Express.
Sharing agreements allow shipping companies to use space on each other’s boats. An Evergreen container on a CMA CGM ship isn’t uncommon, for example.
Containers are cheap enough to buy at a cost of around $3,500 apiece. Tens of millions of these containers could be found across the world from the decks of container ships to the backs of trucks and to ports like this one.
They’re almost constantly in motion and identified by tracking numbers. Containers will often travel empty on container ships and companies will determine whether it’s worth it to ship the containers empty or just buy another one.
Just like an airport, this port has its own privately-owned terminals where containers are loaded and unloaded from ships. The north side of the Elizabeth Channel, for example, is home to Port Newark Container Terminal while the south side is home to Maher Terminals.
Massive cranes greet the ships and immediately begin offloading and loading containers in a real-world game of Tetris.
Handling the containers are port workers known as longshoremen. The union positions are highly sought after thanks to good pay and benefits.
The typical progression for a longshoreman is starting as a baggage handler for cruise lines and then becoming an automobile driver for the car ships. From there, each longshoreman can choose their own specialty and hone their craft.
The Port of New York and New Jersey doesn’t just handle containers, however, and other major imports and exports include automobiles…
And edible oils. .
Even scrap metal is a valuable commodity.
Cruise ship terminals are also under the port’s purview but traffic in that sector has been almost entirely quiet for most of 2020 due to the pandemic.
Trucks are weighed when they enter the port and credentials, known as transportation worker identification credentials, are checked. They’ll then meet with a longshoreman to arrange a spot to pick up their load.
The terminal’s computer system then relays a message to another longshoreman, who then retrieves the container. Each truck is different and one can drop off one load and immediately pick up another one.
But not all pull the double duty. Some trucks are just picking up while others are just dropping off.
The process looks like a lot of waiting around but trucks should be in and out of the port in under two hours.
Around 80% of truck drivers are owner-operators, giving them more freedom than a fleet driver for an established company.
The trucks and rail lines that serve the port can bring goods as far as Tennessee, the Midwest, and Canada. Chicago, for example, is just a two-day rail trip from here.
Around 18% of cargo moves out of the port by rail. Some trains leave the port after being given a mile’s worth of the 20 and 40-foot containers.
Larger and larger ships have been arriving at this port since the pandemic began.
One such ship is the CMA CGM Marco Polo, a container vessel with a maximum capacity of 16,022 TEUs. It’s the largest ship to visit the East Coast that can now access the Port of New York and New Jersey because of recent port improvements.
Standing in the way between the port and larger ships, historically, has been the Bayonne Bridge, which connects Bayonne, New Jersey and Staten Island, New York. While ships have grown in size, the bridge has remained the same for nearly 90 years.
That was until the Port Authority of New York and New Jersey spent $1.7 billion to raise the bridge’s roadway to allow larger ships to pass underneath. The new clearance of the bridge is now 215 feet and ships as large as 18,000 TEUs can pass underneath.
The port has been seeing a steady stream of larger and larger ships ever since. The CMA CGM Brazil broke the port’s record in September, only to have the CMA CGM Marco Polo break it again in May.
The CMA CGM Marco Polo is considered a “New Panamax” ship since it’s greater than 12,500 TEUs. Standard “Panamax” ships were once the largest ships that the Panama Canal could accommodate until larger locks were added in the 2010s.
Containers are stacked up on top of each other 200 feet high, with even more below deck.
During offloading, a constant flow of these intermediary trucks approach the ship to receive containers.
Containers are plucked from the ship by a crane that’s operated by a longshoreman sitting 200 feet off of the ground.
The longshoreman has an overhead view to make collecting the containers easier.
The massive containers are quickly whisked through the air by the crane as if weightless.
The longshoreman then lowers the crane, aligning the container with the truck below.
Once it’s dropped onto the truck, the container is secured and the truck drives off. It’s less than 30 seconds from the time the container is secured until the time the truck is on its way.
The process continues until all of the containers are offloaded.
The ship then receives a new load of containers to transport to the other side of the world. Foreign-flagged ships can’t move goods between two US ports under the Jones Act.
Exports from the US include cotton, forest products, agricultural supplies, and foodstuffs, to name a few.
Around 4,700 containers are being dropped and loaded, just under one-third of the CMA CGM Marco Polo’s total capacity.
From the bridge of the Marco Polo, it’s containers for as far as the eye can see. The Port of New York and New Jersey never shut down operations during the pandemic.
Larger ships coming to the port also requires larger cranes.
The APM Terminals-operated cranes services the Marco Polo are a staggering 209 feet tall.
A maximum of seven cranes was assigned to the Marco Polo at its peak to help expedite the unloading process.
Not every container is searched by US Customs and Border Protection when they enter the country. The agency instead uses complex algorithms to detect anomalies that prompt searches.
Inspectors, for example, can look at the weight of a container and see if it matches up with the cargo listed on a manifest. If it doesn’t, that prompts a search.
Human smuggling isn’t a major issue on the East Coast compared to the West Coast, which has closer proximity to Asia, but ships do have to be on the lookout for stowaways.
Now that the Port of New York and New Jersey has proven it can handle larger ships, it’s only a matter of time before the record set by the Marco Polo will be shattered.
And New York Harbor will continue to receive some of the largest ships in the world.