The cost to ship a standard 40-foot container carrying cargo from China/East Asia to the North American East Coast increased 162% between Dec. 22 and Feb. 9, tallying up to an average price of $6,588.

Want to ship the same container from China/East Asia to the North American West Coast? That would set you back an average $4,859 as of Feb. 9 – a 193% escalation from late December.

These price hikes, tabulated by the supply chain experts behind the global freight-tracking Freightos Baltic Index, illustrate the rapidly soaring shipping costs that suppliers in the North American promotional products industry and other importers – including promo distributors that bring product in directly from overseas –are contending with in early 2024.

“Container rates from Asia have more than doubled over the past month, and remain at risk of climbing even higher in the coming weeks and months,” Frank Carpenito, president/CEO of Top 40 supplier Gemline (asi/56070) and a member of Counselor’s Power 50 list of promo’s most influential people, tells ASI Media.

War, Drought & the Lunar New Year

The rate rises come along with what some suppliers report is a related ill: It’s taking longer to get product produced overseas landed in North America, particularly if shipping to the East Coast or Gulf Coast.

“We’re looking at seven to 14 days longer sailing time,” reports Jeffrey Nanus, CEO of AAA Innovations (asi/30023), a New Jersey-based supplier of eco-friendly hard goods.

War, drought and China’s Lunar New Year holiday have caused the global supply chain disruption that’s at the core of the sourcing consternation in the opening months of the year.

A “rain season” that lacked significant precipitation has triggered a persistent drought at the Panama Canal, which allows ships to pass from the Pacific Ocean into the Atlantic Ocean – and vice versa. It’s generally considered the most efficient way to move cargo by ship from major overseas manufacturing nations in Asia, like China and Taiwan, to the U.S. East Coast and Gulf Coast. The drought is making the shipping journey through the canal costlier and longer.

Then there’s the conflict in the Red Sea, where Yemen-based, Iran-backed Houthi militants have been launching attacks on commercial vessels.

CNN is given rare access to the frontlines of the U.S. Navy's fight against the Houthis in the Red Sea. Natasha Bertrand reports on an aircraft carrier strike group. pic.twitter.com/P1CDBMPS0P

— Anderson Cooper 360° (@AC360) February 15, 2024

While western forces have been striking back, certain shipping carriers aren’t risking voyages through the Red Sea, an essential passageway to the Suez Canal, another key global trade junction through which commercial vessels pass. Instead, carriers are routing around the southern tip of Africa as they travel from Asia to Europe and the North American East/Gulf Coasts – as with the Panama situation, a longer, pricier trip.

“This also means containers will not return to home ports for restocking with new cargo as efficiently, which further increases costs,” explains Yuhling Lu, co-owner of Top 40 supplier Ariel Premium Supply (asi/36730). “A lot of decisions are driven by fear of war and other uncertainties.”

During the Lunar New Year in China – which began Feb. 10 and runs for 15 days – factory and shipping activity in that nation virtually grinds to a halt. It’s an annual event for which suppliers and other North American importers plan.

In and of itself, Lunar New Year wouldn’t be disruptive for sourcing companies that prepare appropriately. Nonetheless, executives say that container/shipping rates tend to rise each year in the lead-up to the holiday as importers clamor to get goods out of China before the productivity drop-off. As the Lunar New Year came amid the Panama drought and Red Sea fighting, it has contributed to stoking container/shipping price increases.

Promo Pricing Impacts

The rates for Asia-to-North America cargo containers and shipping costs more broadly matter to promo because the vast majority of products sold in the U.S. and Canada are manufactured in Asia. The items come over in those now much more costly containers, for instance.

Wildly inflated shipping rates were an unfortunate staple of promo’s COVID-era supply chain crisis, being a primary factor that drove increases in the prices suppliers charge distributors for products.

There were times container rates climbed above an average of $20,000. Some industry importers report that they were quoted rates approaching $30,000 during the height of the inflation.

162%
Increase in the average cost of a standard 40-foot cargo container bound from China to the North American East Coast between late December and Feb. 9.(Freightos)

As of now, promo sourcing leaders don’t expect container rates to skyrocket to crisis-era levels. Even so, if rates continue to go up, or stall at significantly elevated levels into the second quarter and beyond, that could eat into supplier margins, possibly compelling some vendors to implement a round of price increases to distributors.

“If ocean cargo rate increases continue, then at some point it will impact pricing throughout the supply chain,” says Nanus.

Carpenito thinks some suppliers would consider product price lifts if container and related shipping costs remain stubbornly high. “It will depend on whether or not the new rates stick or increase again beyond Q1 or Q2, in which case I suspect we will see some suppliers take price increases,” he shares. “Nobody seems to feel rates will return to the record levels of 2021/2022, but there’s buzz of container rates getting to $10,000-ish.”

“If ocean cargo rate increases continue, then at some point it will impact pricing throughout the supply chain.” Jeffrey Nanus, AAA Innovations (asi/30023)

Jing Rong believes freight rates will stay high through at least the third quarter of 2024, but doesn’t think the charges will rise much beyond current levels.

While climatic, geopolitical and labor issues (see sidebar below) remain threats to the supply chain, the end of the Lunar New Year period in China could help mitigate some of the price pressure, as container rates traditionally decelerate following the annual event, Rong and others note. Highlighting the complexity though: Data from Xeneta, an ocean and air freight benchmarking platform, indicated shipping rates declined a bit between Feb. 1 and Feb. 15, but the Freightos Baltic Index showed that over that two-week stretch container costs were continuing to climb.

“Everyone is still viewing the disruption as temporary, instead of sustaining,” says Rong, vice president of supply chain and sustainability at Top 40 supplier HPG (asi/61966). “If the issues go into 2025, then maybe” suppliers will increase prices, Rong opines.

Like other suppliers ASI Media spoke with, Lu says that Ariel Premium Supply is shouldering the heavier container/shipping costs for the time being. “We’re absorbing the increase, and do not have plans to increase product prices at this time,” Lu shares.

193%
Rise in the cost of a standard 40-foot cargo container bound from China/East Asia to the North American West Coast between late December and Feb. 9.(Freightos)

The Ariel executive and other sourcing experts note that the recent struggles of China-based manufacturers could be beneficial to suppliers that source from that country, where the majority of products sold in the North American promo market continue to be made. China’s manufacturing sector has been contracting, and total U.S. imports from the nation were down approximately 20% year over year in 2023.

Generally speaking, says Lu and others, manufacturers in China have available capacity and are keen for production work, which could lead to “pricing benefits” for suppliers. Those benefits – stable or even lower manufacturing costs charged to industry suppliers – could help offset some of the burden of rising shipping rates. Manufacturing costs and shipping prices are among the fundamental factors that influence what a supplier charges for a promo product, so offsetting in this respect could help limit any potential price increases suppliers may consider passing on to distributors.

“China manufacturers are in a deflationary economic environment and are in no position to increase rates,” says Rong. “For vendors in other countries, they want to take business from China, so they also don’t want to increase prices and lose business.”

Navigating Delays

When it comes to longer import times, the most direct and significant pain point for promo is the Panama Canal. It’s the route favored by industry importers bringing product to U.S. East/Gulf Coasts.

While some promo firms transport goods through the Suez Canal too, that Asia-through-North-Africa route isn’t as widely used by domestic industry suppliers, though knock-on effects from the Red Sea Houthi attacks – like less container/vessel availability and generally higher pricing of containers/shipping – still reverberate throughout global supply lines.

1 to 2 Weeks
Extended time for moving cargo through the Panama Canal reported by some promo suppliers.

Like AAA Innovations, Massachusetts-based Gemline has been looking at delays of a week or two in moving product through Panama.

“We have encountered additional lead time on shipments utilizing that route,” says Carpenito. “We began adjusting our lead times internally in the fourth quarter of 2023 to minimize impacts to our distributor partners.”

Carpenito’s comments highlight an important theme industry executives emphasize to ASI Media: Namely, that in the face of lengthier transit for getting product from overseas factories into domestic warehouses, they’re adapting by adjusting lead times accordingly and don’t expect stock shortfalls. “We have a stronger inventory position than ever before,” says Nanus.

“We have built these delays into our replenishment process to ensure we do not impact our service levels,” notes Liz Haesler, chief merchandising officer at Top 40 supplier PCNA (asi/66887). “Our in-stocks – which we monitor weekly – are back in line.”

As part of its proactive measures, HPG is watching vessel schedules and routing closely and making moves as necessary. “We’re looking at premium services offered by liners with higher cost to get guaranteed space, and to shorten delays when needed,” says Rong.

In a twist, Nanus notes the economic slowdown in China’s manufacturing sector has helped keep production there brisk; factories aren’t backed up and can act quickly on orders that are coming in. “Production times have been fantastic and that has helped mitigate longer ocean cargo transit times” to an extent, he notes.

“While I believe we’ll be dealing with longer lead times through the Panama Canal until the rainy season begins or possibly longer, the addition of a land bridge – using trains to transfer containers from one side of the canal to the other – has already helped in relieving some congestion.” Frank Carpenito, Gemline (asi/56070)

Freight coming in through the West Coast – the most common China/East Asia to North America route – has been impacted in terms of cost due to the wider supply chain fiascos, but suppliers bringing product through western ports say that overall they’ve experienced little to no delays importing this way. “We use West Coast ports,” says Lu. “We have not had issues or delays in receiving inventory.”

While the outlook for the Red Sea situation remains uncertain amid the continuing conflict, some promo sourcing pros see potential for improvement at the Panama Canal on the horizon. There’s already been some good news.

Authorities are continuing to restrict daily vessel passages at the Panama Canal to 24, down from the typical 36 or so, but have said there’s no need to implement what had been plans to further reduce the number of allowed ship transits per day, at this time. Some rain that reportedly came through in December was enough to suspend considerations of further restrictions until April, when water levels will be reevaluated.

The rainy season begins in earnest in May. If the skies open on cue, then authorities could gradually increase the number of daily vessel passages. Carpenito sees further cause for hope.

“While I believe we’ll be dealing with longer lead times through the Panama Canal until the rainy season begins or possibly longer,” he says, “the addition of a land bridge – using trains to transfer containers from one side of the canal to the other – has already helped in relieving some congestion.”

Adds Nanus: “Our industry is resilient. Tariffs, COVID, geopolitical battles, climate change – we have learned to navigate the challenges thrown at us. We’ll continue finding ways to keep business moving.”