Michael Brey has a lot on his mind. Like many retail owners, the president and founder of Hobby Works, a four-location hobby and toy store based in Laurel, Maryland, is gearing up for the holiday selling season.
That includes putting in orders of his specialty totes for the paraphernalia of hobby enthusiasts, which he manufactures using a Chinese factory. But he’s worried his shipments will be delayed, thanks to the bankruptcy of South Korean shipping giant Hanjin, which at the end of August sent shock waves throughout the commercial world when it announced it would enter receivership.
Not only is Hanjin responsible for nearly 8% of all trans-Pacific trade volume, but its failure comes at a time when retailers large and small are putting in their final orders with manufacturers and stocking up in preparation for the holiday shopping season.
Currently, Hanjin, the seventh largest shipper in the world, has reportedly left stranded nearly half of its fleet of 100 vessels in ports around the world. Although Hanjin is said to be working on the solution, its ships, carrying billions of dollars worth of merchandise, are unable to pay the terminal operators the various offloading and fuel surcharge fees required to get the cargo moving. Eliminating such a large carrier also constricts the shipping pipeline for new shipments until the crisis is resolved.
Brey, whose company has 50 employees and annual revenue of $6 million, says he probably ships about 12 containers a year using the Evergreen Line and MSC Cargo. Yet even though he doesn’t use Hanjin, he believes the shipments of his product are in jeopardy.
“This is the time when all the big boys–the Walmarts and Amazons and Kohl’s of the world–are pushing their factories to get their products manufactured and shipped to the states and ready to move to stores,” Brey says. “If we have prearranged with [our shippers] to do two containers at the end of November, and then Walmart says we need this entire ship, guess what will happen to me.”
The largest retailers and their vendors have well-established shipping contingency plans for emergencies such as bankruptcy or natural disasters, which enable them to shift from one carrier to another to ensure proper delivery of products, says Jonathan Gold, vice president for supply chain and customs policy for the National Retail Federation. That’s not necessarily the case for smaller retailers, who lack the scale of their larger competitors.
“There is the potential that smaller retailers could be harmed,” Gold said.
One reason is that contingency plans for smaller businesses can be radically more expensive.
Freight forwarding companies such as Unitrans Worldwide, a 12-employee company based in Randolph, Massachusetts, for example, provide full-service shipping arrangements to small manufacturers and retailers. During the West Coast port shutdown in 2015, Lindsay Barich, the company’s chief executive and founder, said he was able to manage deliveries to other ports throughout the U.S.
Given the timing of Hanjin’s bankruptcy, some of Barich’s customers have found their only option is shipping their cargo by plane, he says. For example, Barich says he helped a local manufacturer and retailer of sporting goods products transport its polo shirts, golf shoes, and belts using an air carrier, so it would have the products in time for the holidays.
Yet the expedited service came at a steep cost, of about $11,000 for the order, more than three times the cost of shipping the cargo by boat.
“They paid an exorbitant amount of money for something that could have gone by ocean,” Barich says.
Rising shipping costs and delays related to the Hanjin bankruptcy are also something that Bryan Pate, the chief executive and co-founder of ElliptiGo, a San Diego-based elliptical bicycle manufacturer with 22 employees, says are now on his radar. The company ships about 40 containers worth of product a year from Taiwan, destined for 250 retailers around the U.S. as well as for sale online at its own website. Pate says his director of operations has gotten shipping estimates that are between 15% and 75% higher from his own freight forwarder, which uses Hanjin, among other large worldwide shippers.
“We were shocked to hear the news,” Pate says. He adds that the company could handle a small rate increase, but would have a hard time continuing to expand if rates were to jump 75%.
“That would cost us about $80,000 a year, which is like adding another employee,” Pate says.