A new inflation warning for consumers coming from the supply chain
An Optoro warehouse in Tennessee that handles returns for retailers.
Source: Matt Adams | Optoro
As the markets prepare for the latest consumer price index data on Tuesday, logistics managers are warning of a persistent source of inflation in the supply chain, and saying consumers should be ready for the impact it will have on their wallets. While many sources of supply chain inflation that stoked higher goods prices have come down sharply, including ocean freight rates and transportation fuels, bloated inventories due to a lack of consumer demand are pressuring warehouse rates.
“In 2022 we saw rate levels for international air and ocean and domestic trucking fall back down to Earth,” said Brian Bourke, global chief commercial officer at SEKO Logistics. “But inflationary pressures remain where demand outpaces supply in 2023, including in warehousing through most of the United States, domestic parcel and labor.”
One reason for the imbalance between warehouse supply and demand is lack of new facilities coming into the market.
“National warehousing capacity remains low and will remain tight for the foreseeable future as U.S. industrial construction starts have fallen considerably year-over-year due to rising interest rates,” said Chris Huwaldt, vice president of solutions at WarehouseQuote.
Full warehouses and distribution centers have some shippers holding their products in containers on chassis, but this has them incurring charges which are passed on to the consumer. Shippers are given an allotted amount of free time during which they are not charged for holding a container, but once those days expire, per diem charges (late container charges that are charged for containers out of port) start to be charged.
Containers left on chassis create two costly problems, said Paul Brashier, vice president of drayage and intermodal for ITS Logistics. It prevents those chassis from being used to move newly arriving containers, putting additional stress on chassis pools throughout the U.S., especially inland rail ramp pools. Shippers will also be charged fees for the dwelling chassis — separate from the per diem charge shippers will also pay per day the container is out of use beyond its free time. “This can lead to tens of millions of dollars in penalties,” Brashier said.
He predicts that the per diem charges are going to surge in the second and third quarters of this year.
“These are on top of charges for warehousing which are still at historic highs,” Brashier said. “Late fees and warehouse fees are passed onto the consumer, which is why we are not seeing products fall as much as they should.”
National storage pricing is up 1.4 percent month-over-month and 10.6 percent year-over-year, according to WarehouseQuote.
For shippers with inventory imbalances, Brashier says these charges could cost shippers tens of millions of dollars per quarter. Brashier warns these charges, on top of weaker consumer demand will ripple through earnings.
ITS Logistics is advising clients to avoid a hit to their bottom line by considering short-term, pop-up storage offered by third-party logistics providers (3PL) and grounding operations. “This will reduce reliance on storing freight in ocean containers,” Brashier said.
Mark Baxa, president and CEO of the Council of Supply Chain Management Professionals, tells CNBC inflation and higher interest rates are driving supply chain leaders to critically examine working capital investments in inventory and operations in relation to consumer demand forecasts.
“In the short run, supply chains have moved closer to finance teams to manage cash flow, coupled with greater efforts to manage costs across operations. Considerations have moved to close-in review and total cost management across the business, including people, technology, warehousing, and transportation investments,” said Baxa.
One industry facing supply chain inflationary headwinds is construction.
Phillip Ross, accounting and audit practice leader of Anchin’s architecture & engineering groups, says supply chain inflation has made it more difficult for companies to manage completion times for projects.
“In some cases, we are looking at 6-8 months before materials will be available,” Ross said. “Construction, as one of the largest industries in the US, is uniquely impacted by the supply chain, which led to construction companies experiencing not only delays in their work but also increased prices for materials.”
Steve Lamar, CEO of the American Apparel and Footwear Association, tells CNBC shippers are finding it harder to absorb extra costs as a result of the Trump-Biden tariffs on China. “These tariffs are now hitting $170 billion and are baked into the cost of goods and hence higher prices at the register. The tariffs make it harder for companies to absorb other inflationary costs.”