BY MATT WIEBE
PHILADELPHIA, PA—Pat Cunnane, president of Advanced Sports Inc., traveled to China at the end of April to make sure the bikes he needed would be on their way.
Spring fever sent bikes flying out of dealers in March and April but with a shipping slowdown and container shortage, resupplying his warehouse has become a challenge.
“I think there could be spot shortages for a lot of us. The slowdown and container issue is making it difficult for everyone to get bikes when they want them,” Cunnane said.
Shipping lines and importers moving goods negotiate next season’s shipping rates in May every year. A little posturing from seller or buyer is normal.
But what was unusual this time around is how early the pressure tactics started, with importers reporting container shortages and increased rates beginning at the end of last year.
“Starting from January, carriers decided to cut the number of shipments to the USA from Asia. This situation is expected to continue for the immediate future, although how long is not exactly clear,” said Brad Parkins, Giant’s purchasing agent.
“Giant, as well as other importers, has been experiencing periodic challenges booking shipments this year due to container space shortages,” Parkins added.
Importers saw some of the lowest eastbound Pacific rates in 2009. The worldwide economic slowdown meant shipping lines had to fight for the little business that remained, and freight prices fell.
Shipping lines took capacity out of the system to firm up pricing. And in addition, many lines slowed their ships to save on fuel and cut costs. Even the fuel savings did little to help as most lines reported heavy losses last year.
As markets picked up steam and demand for goods rebounded, shipping lines ended up with the leverage. Combined high demand from importers to move Asian products to market and fewer containers are escalating prices.
“Rates did drop too low last year and all of the companies were losing big money. But they started to cut space and artificially increase the demand with the crescendo coming before Chinese New Year,” said Arnold Kamler, Kent International’s president.
“Every single company dishonored their contract and as an importer you had the decision to stick to your principles and demand the contract be honored and get no containers shipped, or compromise and pay higher and higher prices,” he said.
The Transpacific Stabilization Agreement (TSA), a group of 15 shipping companies, is seeking an $800 rate increase per 40-foot container on Asia to United States West Coast routes in new contracts.
The increase would return freight rates close to what they were in 2008.
China Cosco and China Shipping, China’s two largest container lines, said they expect the higher rates to be accepted.
Unfortunately for bike suppliers, the rate conflict with shipping lines is coming at a difficult time.
Suppliers have been sitting on high inventory levels for two years due to the economic downturn and some have begun to successfully sell down their backlogs.
The abnormally cold and wet winter slowed sales in January and February, and suppliers were conservative with fill-in orders, not wanting to be saddled with too many 2010 model year bikes if the market turned out to be as slow as 2009.
“Our March and April business is setting up to be a record for us. Part of it is strong retail sales, but a lot of it is dealers were more successful in selling down their inventory than we expected and need bikes,” ASI’s Cunnane said.
Cunnane noted that when the supply channel runs lean, everything depends on timely supply, which is something that is not happening right now.
“I think the situation will correct itself over time, but right now it’s difficult and that’s why I headed over to China,” he said.
The big question is how quickly will the situation adjust so importers can count on space even if that space will now be more expensive.
“I expect freight costs will be about 80 percent higher than one year ago. They were too low one year ago, but they have gone too high which is normal,” said Kent’s Kamler.
“We expect the freight rates to soften in the summer. Space remains tight but will loosen in about one month. You can get all the space you need now if you do not mind paying stupidly high prices,” he added.
While bike suppliers may not like the container shortage or increasing shipping costs, it doesn’t appear to be putting a damper on imports for the first two months of the year.
Unit imports were 12 percent higher through February compared with the same period in 2009, according to the latest figures from the Commerce Department.