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Viewpoint: The chartering of goods and the return on investment

Chartering a container vessel is costly, but the benefits may be worth it

(Photo by Jim Allen/FreightWaves)

This commentary was written by Lori Ann LaRocco. The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.

By Lori Ann LaRocco

We all know some of the biggest kings in retail have been publicly talking about the contracting of charter vessels. The price is inflated so just like using airfreight, businesses have to justify the expenses. With an all-in of around $7 million, companies need to make sure they will see a return on investment.

American Shipper, along with Import Genius, reviewed the bills of lading of three of the big names using charters: Ikea, Costco and Walmart. The strategies of the companies can be clearly seen based on the contents in the containers.

For Costco, chartered containers show holiday items that recently arrived at the port to replenish out-of-stock items. Containers filled with Christmas trees like this 7.5-foot pre-lit Aspen Micro Dot LED Tree arrived at the Port of Oakland, California, on Oct. 7.

Also included are other hot seasonal items, such as firepits and patio sets. Based on the volume of TEUs, Costco’s total imports this year will surpass prior years. Investors in Costco should be cheering over this data.

In the case of Ikea, the tale of the containers shows preservation of inventory. Countertops, cabinet bases and nondescript “equipment” are listed in its bills of lading. The company is nearing its normal import volumes — which for investors is a good forward-looking indicator of the company’s supply chain and outlook on the consumer.

One of the reasons retailers are using charters is to have more control over their logistics and avoid congested ports. You can clearly see the market share loss that the Port of Los Angeles has seen when reviewing the bills of lading of Ikea.

Not only do you see the Port of Seattle gaining container volume, you also see LA losing share to its sister port, Long Beach.

Charterers are looking to route their cargo to where they have an existing distribution network already in place.  

“Businesses are not using the charter exclusively as their volume is too large and too fragmented,” one chartered explained. “The charter vessels are going to feed into a preexisting system, unless they have one single location where they need a huge volume of cargo.”

For example, one importer used a charter vessel on the Shanghai to Savannah, Georgia, route since much of its inland trucking is in place from the distribution center in Savannah.

Meanwhile, bills of lading identifying Walmart and Sam’s Club show a consistent pattern of imports. While they are up compared to 2020, they are nowhere near 2019 imports. 

Remember, Walmart shelves include products from smaller companies that are not using charters. Those containers filled with products would have the name of the smaller company — not Walmart — on the bills of lading.

Walmart recently detailed its logistics supply chain plan on its website. There, the company explained the hiring of truckers, warehouse workers and how it is chartering ships and diverting shipments through less-congested ports. 

Walmart also mentioned it has rerouted inland shipments, utilizing less conventional transportation methods to avoid rail delays. Containers filled with garments and towels are listed on the bills of lading.

Retail analyst Joe Feldman of Telsey Advisory Group said the large, big box retailers have the most efficient supply chains and are proactively managing it to procure the goods needed to meet the consumer demand.

“They ordered early, received goods earlier, expedited shipments where possible, and contracted private vessels,” said Feldman. “In addition, many of the largest retailers have their own domestic transportation fleets to move the goods once here in the U.S.”

Inflation has shown the increase in the cost of logistics has been passed on to the consumer.  The return on investment in using charters to gain security of a supply chain can be clearly correlated. With Americans not slowing down in their shopping habits, it should come as no surprise the use of charters will be expected well into next year.

Lori Ann LaRocco

Lori Ann LaRocco is senior editor of guests for CNBC business news. She coordinates high profile interviews and special multi-million dollar on-location productions for all shows on the network. Her specialty is in politics, working with titans of industry. LaRocco is the author of: “Trade War: Containers Don’t Lie, Navigating the Bluster” (Marine Money Inc., 2019) “Dynasties of the Sea: The Untold Stories of the Postwar Shipping Pioneers” (Marine Money Inc., 2018), “Opportunity Knocking” (Agate Publishing, 2014), “Dynasties of the Sea: The Ships and Entrepreneurs Who Ushered in the Era of Free Trade” (Marine Money, 2012), and “Thriving in the New Economy: Lessons from Today’s Top Business Minds” (Wiley, 2010).