A gigantic container ship, reportedly taller than the Empire State Building if stood up, became stuck in Egypt’s Suez Canal on March 23. The Ever Given was blocking other ships from passing through what’s one of the world’s busiest shipping routes, through which approximately 10% of global trade passes. Some logistics experts said that the ship, which is operated by Taiwan-based Evergreen Marine Corp., could cause days or weeks of delays, thereby significantly impacting global trade.

In a way, the stuck ship and its related blockage is a telling symbol of the state of global supply chains in the first quarter of 2021, and that’s continuing to impact the promotional products industry.

The Suez Canal has been blocked by a large container ship that ran aground while turning in the narrow channel, causing one of the largest shipping pile-ups in history: https://t.co/XixT2TAf8E pic.twitter.com/BHvwdSFBoe

— Shiv Aroor (@ShivAroor) March 24, 2021

Industry suppliers report that some shipping fiascos have lessened slightly from the fever pitch experienced as a result of Chinese New Year in February, but note that issues now seemingly endemic to importing continue to cause ample disruption.

Stemming from COVID-caused problems, there’s simply not enough shipping capacity or shipping containers to accommodate demand from western importers desperate to move goods from factories in Asia to North America – all in a bid to meet current and anticipated future growth in end-buyer demand. That’s not only lengthened how long it takes for importers to receive goods to replenish inventory, which has contributed to lower-than-normal or even depleted stock on some items in promo, it’s also significantly driven up the cost of shipping.

“Best case recently has been that ocean cargo costs are up 67% over last year,” says Jeffrey Nanus, president of Norwood, NJ-based hard goods promo supplier AAA Innovations (asi/30023). “We’ve received quotes as high as a 250% increase. None of the steamship companies are honoring our contract rate.”

“We’re continuing to see higher freight rates and difficulty securing container availability out of certain countries,” says David Nicholson, vice chairman of Polyconcept, the parent company of New Kensington, PA-based Top 40 supplier Polyconcept North America (PCNA; asi/78897).

“While it has moderated slightly from the pre-Chinese New Year peak,” Nicholson continues, “it remains a very challenging situation that we expect to persist for much of this year. As a result, we’re facing longer lead times and high costs for new orders.”

Relatedly, efficiency issues resulting from COVID-19 fallout and other factors have gummed up the works at ports, including major intake destinations like the Port of Los Angeles, which makes it take even longer for importers to get stock once it’s stateside. Clogs at Los Angeles are reportedly improving, but even once cargo is landed, snags with trucking and rail are causing more delays.

“For suppliers that ship through LA and put their goods on the rail, the delays can be 45-60 days,” Nanus says.

There’s one silver lining, though: Many suppliers/importers say they’ve begun to adapt, which may at least bode well for inventory levels/product availability normalizing – a good thing for distributors and end-clients.

“Most suppliers have now adjusted assumptions and forecast models to account for the delays and longer lead times,” Nicholson relates. “So, I expect the inventory situation to largely moderate and for in-stock rates to improve throughout the second quarter.”

Plastic Problems, Raw Material Woes, Rising Prices

While that’s good news, other headwinds continue to blow strong through international supply chains. Taken together with the shipping expenses, the bottom line result of these for promo is rising prices on a gamut of promotional products.

For one thing, the U.S. dollar’s value against the Chinese yuan has declined, dropping roughly 7.5% from a year ago. Factories in China produce the majority of promo items sold in North America. That means that U.S.-based companies’ cash doesn’t go as far as it did with those manufacturers, resulting in them having to pay more.

“Every factory in China has raised prices on every single item we purchase,” says Nanus. “Prices are up 5% to 10%.”

A surge in factory output is testing already strained global supply chains, raising prices of raw materials and other inputs at the fastest pace in a decade https://t.co/ycrzhCSSM6

— The Wall Street Journal (@WSJ) March 24, 2021

The exchange rate headache is occurring at a time when the cost of a range of raw materials that are important components of promo products – including cotton and steel – have increased. Gas and oil prices have been on the rise too. That can further fuel transportation cost increases and potentially impact what product-makers have to pay to produce certain items that contain elements like polyester and plastic.

Speaking of plastic problems: The historic freezing winter weather that spurred massive blackouts in Texas in February 2021, caused more issues for global supply chains because it led to shutdowns of chemical plants in the Gulf of Mexico region. Plants remained sidelined or operating at reduced capacity in March, according to a report in The Wall Street Journal. That’s led to supply shortages and prices for polyethylene, polypropylene and other chemical compounds – all things the plants handle – reaching their highest levels in years. Such elements are used to produce everything from auto parts to an array of plastic products.

Some promo suppliers that deal extensively in plastic products told ASI Media that they’re not yet experiencing shortages related to the materials they need to have their products made, though some fear that could occur if demand surges amid an improving economy. However, they say the overall issues with plastic raw materials/price hikes are another cost pressure contributing to it becoming more expensive to manufacture products and bring them to market.

“The shortage is definitely a contributing factor for some of our direct product cost increases,” says Pete Gleason, vice president of business development at Erie, PA-based Custom Plastic Specialties (CPS; asi/43051). Taken with other factors (weakened dollar, shipping costs, etc.), CPS is seeing an “impact on pricing that varies between 5% and 12% depending on the item.”

Faced with such realities, some suppliers have already raised prices.

“All imported items are currently at a peak cost right now due to the combination of the weaker exchange rate, high costs of shipping due to COVID-related surcharges and increasing raw material costs in several categories,” explains Benn Chazan, vice president of business development at Virginia-based supplier BamBams (asi/38228). “Made-to-order suppliers like BamBams have mostly already increased prices to compensate.”

Other suppliers have announced that price hikes on products they sell distributors are definitely coming. PCNA increases are set to take effect April 5. Meanwhile, other suppliers have tried to hold the line, but say the maelstrom of cost pressures may make that infeasible in the months ahead.

“We felt it was necessary to hold as many prices at 2020 levels for 2021 as long as possible and are committed to doing that for our customers,” says Gleason. “Obviously that has an impact on our margins, which has a trickle-down effect to other areas of our business. If costs continue to rise, we may be forced to adjust our prices.”

Industry-wide, Gleason expects price increases on products “across the board.”

“The worry for many of us,” he says, “is that we’ve had to make so many changes during the pandemic that there’s not much more wiggle room left to make cost savings, and ultimately we’ll be forced to adjust pricing.”