Forty percent of global shipping lanes are compromised, and that’s not good for shoe firms.
According to Joseph Firrincieli, sales manager at global freight forwarder OEC Group New York, a leading company in Trans-Pacific trade, tariffs are increasing costs for U.S. consumers. Those higher costs are now further pressured by the geopolitical landscape with global shipping lanes — Suez Canal, Red Sea and Strait of Hormuz — disrupted and impacting trade.
Shoe importers tend to use the Trans-Pacific route, the world’s largest ocean freight corridor from Asia to the West Coast, where goods arrive primarily at the ports of Los Angeles and Long Beach. Product from Asia to the East Coast tend to travel through the Panama Canal, but capacity limitations mean the Suez Canal becomes the preferred option.
But when the Suez is closed, the option then is to “go around the Cape of Good Hope, which adds two to three weeks transit time onto the normal transit time,” he said, explaining that “carriers don’t want to do that for obvious reasons, the fuel crisis and also because they have to pay the crew more. This is definitely the most complicated market I’ve ever seen — I honestly think anybody’s ever seen, even if they’ve been doing this for 40, 50 years.”
Another issue resulting from increased fuel costs is the number of blank sailings.
Firrincieli said blank sailings happen when carriers take ships out of rotation. “So, for the month of June, there’s 50 ships that are going out. They might take 10 of those 50 out of rotation and they won’t be shipping out because they don’t have enough cargo to fill those ships,” he said.
There’s been some pulling forward of goods as companies try to load up on some inventory to get ahead of the Section 122 tariff that’s 10 percent across the board and set to expire on July 24. The historic peak shipping season for the Trans Pacific route, “and really anywhere in the world, is usually July or August up until the first half of October,” he said. “Back-to-school is already here. Labor Day is already here. What’s coming in now is Christmas and New Year’s.”
He also said some front-loading could have occurred also because “freight rates have been going up, leaving some importers afraid that if they waited until July or August to ship like they normally would, rates would be even higher.”
There’s a level of uncertainty over how high the expected new rates — additional duties to replace the Section 122 tariffs that expired on July 24 — might go. While footwear-producing countries has primarily centered on China and Vietnam, Firrincieli said “now we’re starting to see Cambodia also, since it’s so close to Vietnam. We’re starting to see India as well, and also Indonesia.”
Based on shipping data, he said consumer demand seems down or “relatively stagnant.” And while the Strait of Hormuz isn’t a trade route for footwear, he said it is still important to monitor because it is a fuel trade route. “The closure has caused fuel prices to drastically increase, which has then caused ocean carriers to increase freight rates, whether at the fixed rate level or the FAK (Freight All Kinds) spot rate,” he said.
And he noted that even air isn’t necessarily an option since air freight ends up going up in price too.
His advice for firms is that they need to be forecasting better and trying to place ocean bookings a minimum of four to six weeks prior to the definitive cargo-ready date.
“Push the vendors and suppliers at origin to get the goods ready earlier than expected….If they were originally going to be ready on July 10, for example, I would recommend heavily pushing the suppliers to see fi they can get those goods ready two weeks earlier. Forecasting is the most important thing right now,” he said.
Another problem for shoe firms is their shipping contracts, most of which expired at the end of April. “The thing is, fixed rates aren’t really fixed anymore. Pre-COVID, it used to be that you had one rate, and maybe it would change throughout the course of a year, but not really because it didn’t change too often,” he said. In addition, the contract had a mutually agreed upon peak season surchage, but carriers then usually didn’t implement it and if they tried, a lot of importers would push back, he explained about pre-COVID practices.
“The landscape of that market changed entirely post-COVID. Right now, fixed rates are not fixed. They’re changing every week or two. Carriers are implementing a variety of different surcharges,” Firrincieli said. “Those surcharges include emergency bunker surcharges, emergency fuel charges, disruption surcharges, mutually agreed upon peak season surcharges, Panama Canal low water surcharges, etc.”
And for those who don’t have a contract, the spot rate market changes every one to two weeks “unless you’re a really, really big importer with a lot of buying power,” he said. “It’s very difficult to budget, and that’s why you need a trusted logistics provider…You’ve got to trust who you’re working with, and trust that they’re going to give you the information they have once they find out and once they know for certain,” he advised.
He expects that the impact of all these higher costs will result in shoe prices going up. “Ocean freight rates have started to go up. They’re continuing to go up. Trade wars are obviously making prices go up….Don’t be surprised if what once cost $199.99 [for a pair of shoes] maybe now costs $249.99,” he said.
