The disruption caused by Houthi attacks on cargo ships in the Red Sea is forcing U.S. retailers to rethink how back-to-school and holiday shipments are handled, according to the National Retail Federation.
The Red Sea is an important shipping conduit for the Suez Canal, a vital artery for global trade. While the overall volume of U.S. trade that transits the Suez Canal is only about 12%, the impacts of the Houthi attacks are being felt far and wide, Jonathan Gold, the trade group’s vice president of supply-chain and customs policy, said in prepared testimony during a hearing Tuesday of the House Subcommittee on Coast Guard and Maritime Transportation.
“NRF members are working closely with their supply-chain partners to address the disruptions and are implementing mitigation strategies to ensure products arrive in time,” Gold said. “It is important to note that retailers are making decisions now regarding back-to-school and holiday shipments.”
Related: These retail stocks could be exposed to Red Sea disruption, say analysts
These include rerouting cargo around the Cape of Good Hope, a longer journey which adds 10 to 14 days to members’ supply chains.
“NRF members have to rely on the decision of the carrier, but then address the delayed transportation issues when the cargo arrives in the U.S.,” Gold said.
Another strategy involves shifting cargo to West Coast ports to avoid the disruptions and additional shipping time caused by the Red Sea issues. “They have decided to bring cargo into the West Coast ports and then use intermodal rail to get the cargo back to the East Coast, where it was intended,” Gold said.
The NRF representative said this decision had also been influenced by the drought conditions in the Panama Canal region.
Additionally, some retailers are shifting to air cargo for more sensitive and timely shipments, and are also encouraging earlier shipments. “Retailers have been working with their overseas vendors to encourage them to ship earlier as they expect disruptions to increase,” Gold said.
Against this backdrop, Gold urged the federal government to pay attention to freight rates and port congestion, noting that the West Coast shift may cause congestion at the ports that are not properly planning for the surge in cargo. He also urged the government to be aware of vessel and equipment issues.
“There is growing concern about the impact on empty-container availability overseas,” he said. “We have heard from some members that vessel space is becoming increasingly constrained, which may impact replenishment for spring and summer merchandise.”
Related: Retailers could suffer ‘perfect storm’ of Red Sea and Panama Canal disruption, says logistics expert
Experts are increasingly warning of the challenges that global supply chains currently face. In an interview with Fox Business, Diego Pantoja-Navajas, vice president of Amazon Web Services Supply Chain, said that the situations in the Suez Canal and Panama Canal are “dramatically impacting supply chains.”
The “consequences of this double whammy are already rippling through global trade networks, and the slower arrival of goods is already occurring,” he said. This could impact supply levels and prices in a number of sectors, including electronics, appliances, furniture and oil, according to Pantoja-Navajas.
Analysts have warned that several retail stocks could be exposed to the fallout from the Houthi attacks in the Red Sea. Wells Fargo sees Dollar Tree Inc.
DLTR,
as most at risk from the disruption, while Raymond James says that companies with high European revenue penetration are most exposed to the risks if the disruption persists, pointing to softline retailers Ralph Lauren Corp.
RL,
Skechers USA Inc.
SKX,
Capri Holdings Ltd.
CPRI,
and Nike Inc.
NKE,
Related: Red Sea and Panama Canal disruptions may snarl supply chains, but these two toy makers appear well-positioned
This week, BMO said that the Red Sea attacks add “an element of uncertainty” for food retailers Dollar Tree
DLTR,
Target Corp.
TGT,
Walmart Inc.
WMT,
Costco Wholesale Corp.
COST,
and Dollar General Corp.
DG,
Chef’s Warehouse Inc.
CHEF,
which imports European specialty foods, may experience product delays and cost pressures, according to BMO.
In a recent note, Raymond James analyst Rick B. Patel also wrote that the Panama Canal issues could mean volume benefits for J.B. Hunt Transport Services Inc.
JBHT,
and Western rails Union Pacific Corp.
UNP,
and BNSF Railway if they persist.
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