The supply chain headaches are back.

Soaring freight rates, a shortage of cargo containers and longer lead times to get products made overseas landed in North America are among the sourcing challenges currently facing promotional products companies and importers/exporters across industries.

The issues are reportedly rooted in what CNBC supply chain expert Lori Ann LaRocco characterized as a “perfect storm in global trade” – an upheaval whose root factors reportedly include an early start to the peak shipping season and conflict in the Middle East.

Promo executives ASI Media spoke with say the sourcing impediments are compelling importers within the merch market to ship orders from internationally based manufacturer partners farther in advance than normal to ensure products arrive on time – a tactic aimed at preventing inventory shortfalls.

Still, some warn of instant impacts to orders of built-from-scratch custom promo products being produced overseas.

“Distributors working on large custom overseas orders could experience delays in receiving product,” says Jeffrey Nanus, president of New York-based hard goods supplier AAA Innovations (asi/30023). “Custom orders will also be impacted immediately as importers will have to quote based on projected ocean cargo costs, which are rising rapidly.”

Will Promo Pricing Rise?

Out-of-control freight transportation rates, a dearth of shipping containers, inadequate space on cargo ships, and painfully elongated importing cycles were among the hallmarks of the COVID-era supply chain crisis that contributed to consumer inflation and fueled product price hikes and inventory shortfalls in the promotional products industry.

The similar issues now in play aren’t occurring at as severe of a level as seen during the pandemic. Still, there’s not a concrete consensus on when the problems will end or how bad things will get. “We do expect this freight rate rising trend to continue, but it is not clear yet for how long,” says Yuhling Lu, co-owner of Top 40 supplier Ariel Premium Supply (asi/36730).

Some executives in promo and certain shipping analysts are hopeful that things will quiet down some after the end of the peak shipping season. Peak is beginning early this year, in June, as western importers rush to get products stocked in advance of back-to-school and holiday shopping seasons (more on this below).

“We do expect this freight rate rising trend to continue, but it is not clear yet for how long.” Yuhling Lu, Ariel Premium Supply (asi/36730)

The early word from promo suppliers ASI Media spoke with is that they aim to hold current pricing, but if their shipping costs continue to rise and remain at elevated levels, they could have to increase what they charge for the products they provide. “I feel suppliers will delay price increases as long as possible,” says Lu.

“We don’t see price increases at this time,” asserts Jing Rong, vice president of supply chain and sustainability at Top 40 supplier HPG (asi/61966). The supply chain “price increases are temporary and we expect them to go down later this year.”

Nanus believes most suppliers will keep current price tags on “basic merchandise as long as they can, but prolonged increased ocean cargo costs will impact pricing. As during COVID, the larger items will see a more pronounced impact as the ocean cargo costs represent a greater portion of the overall price.”

Adapting, Again, To Keep Strong Stock Levels

Just as they did during the COVID sourcing crisis, industry suppliers say they’re adapting to the sourcing turmoil.

Ariel, for instance, has been working closely with its freight forwarder partners to ensure it secures its required number of containers – an effort that includes booking containers four to five weeks sooner than what’s standard for the firm. “We’re planning earlier to cover any foreseeable inventory gaps,” Lu shares.

Rong says that lead-time for East Coast-bound containers carrying products stateside from overseas has become anywhere from a week to two weeks longer. Smart suppliers “will have added in the additional lead time to their inventory purchasing efforts,” Rong believes. As such, she doesn’t at this point think the industry will experience anything like the widespread inventory shortfalls that occurred during the pandemic.

Nanus is seeing importing delays of two to three weeks. Like others, AAA Innovations is accounting for that by strategically ordering stock farther in advance. “We’ve been here before,” he says, “and will continue to work through it to keep serving our distributors.”

Causes & Outlook

On April 19, the average cost of a standard 40-foot cargo container bound from East Asia to the North American West Coast was about $2,910. Fast-forward to May 24, the price was $4,915 – a 69% increase, according to the Freightos Baltic Index, a global freight rate tracker.

Similarly, freight intelligence firm Xeneta’s data shows short-term rates for 40-foot containers to the West Coast rose about 40% between April 17 and May 23.

While not near the rates of above $20,000 experienced at points during the COVID supply chain crisis, the current figures highlight the escalating cost pressures suppliers and other importers are facing. High demand triggered by the early start of peak shipping season, itself compelled in part by fears of a potential strike at U.S. East Coast/Gulf Coast ports amid unresolved contract negotiations for port workers, is reportedly one reason for the heftier rates.

69%
Average percentage increase in the cost of a 40-foot cargo container bound from East Asia to the North American West Coast between April 19 and May 24.(Freightos)

Other factors spurring the pricier container/transport rates, and related insufficient container capacity, include: militant attacks in the Red Sea that have forced the rerouting of cargo-carrying vessels on a longer passage that takes them away from Egypt’s Suez Canal and around the southern tip of Africa; incorrect shipping forecasts that have led to inadequate capacity in the market; and ships not picking up/returning empty containers as they race to meet timetables on longer routes (and due to time lost because of recent bad weather in parts of Asia).

Some logistics experts say a desire to get product shipped before the enaction of announced new tariffs in the United States and Latin America is revving up demand for containers and space on ships, a reality that’s also spiking cargo transport costs and making it more difficult to secure containers.

Given the current situation, some analysts are concerned a new post-pandemic supply chain cost record will be set, even if those rates do not surpass the expense levels seen during COVID. Freight industry professionals predict prices will rise further in June.

“With vessel capacity already stretched thin, the recent increase in demand is enough to push rates up,” Judah Levine, Freightos’ head of research told CNBC, “and the added lack of containers is only helping to push them up even higher.”