by Rising container costs result in actions including freight surcharges and price hikes
HIGH POINT — Rising container rates that are occurring in a still slow business environment are causing furniture industry resources to take measures including raising prices and implementing freight surcharges. Others meanwhile are cutting expenses in order to cover costs.
Ashley Furniture, for example, has alerted customers that it is raising prices by about 3% on all products except domestic case goods and domestic bedding which will increase by about 1%. The increases take effect on all new orders on July 15. It will reprice all open orders July 29.
The company said the change is related to disruption in the marketplace including factors such as 1) a surge in demand driven by a shortage of capacity 2) the fact that major ports such as Singapore are experiencing severe backlogs because of congestion 3) the impact of disruptions in the Suez Canal 4) average vessel speed being at its lowest recorded levels.
“The disruptions in the marketplace have had a notable impact on shipping capacities and have contributed to significant cost increases across various areas,” wrote John Mask, senior vice president of strategic sales and marketing. “Ocean freight, labor costs, vendor finished goods, vendor components and raw materials prices have all been impacted. In response to these challenges, we have engaged with our container suppliers and have secured the necessary container volume to continue moving our freight. Securing these containers has come at a higher cost than we anticipated during our product costing process. To effectively navigate these rising costs and maintain the quality and reliability of our services, we find it necessary to review our pricing structure. … We remain committed to offering you the best value in the industry. When container freight costs stabilize, we will reassess our pricing.”
Yet for now, it has been extremely difficult for Ashley and others facing similar pricing decisions, whether it be an increase or a freight surcharge. Todd Wanek, president and chief executive officer, described this period as a perfect storm of issues ranging from Singapore port congestion to the Red Sea turmoil and peak season timing.
“All those things are kind of hitting at the same time,” he told Home News Now.
“There is really no choice,” Wanek added of the price increase. “The fact of the matter is the spot market has gone up so much. We are a contract-based company, but we are just not getting enough ships. There is not enough capacity out there so you end up on the spot market trying to buy freight, and that’s what we are doing.”
Despite the massive capacity constraint, he said, it’s important to do what’s needed to get furniture to the marketplace.
“Our responsibility and everybody’s responsibility is to keep supply chain moving,” he said. “If somebody wants to buy a piece of furniture, it’s our job to make sure that piece of furniture is available quickly to satisfy the customers.”
“So this is a temporary price increase,” he added. ” We hope this eases. We hope that within six months the capacity problem is gone and the price increase is gone as well or at least part of it.”
The increases in freight are impacting importers throughout the industry, effectively raising container prices as much as several times what they were earlier this year. This means that rates will be several thousand dollars higher, resulting in an increased cost of Asian-sourced products ranging from bedrooms and dining rooms to stationary and motion upholstery. One source said this has brought container rates to as high as $10,000, compared to a few thousand earlier this year.
Flexsteel is implementing a freight surcharge on all imported soft goods and case goods purchased from its warehouse. The charge applied to all new orders placed after 2 p.m. June 19.
“Ocean carriers are systematically cancelling sailings and are not providing consistent bookings at our contracted rates,” said Brian DesBiens, vice president of retail sales at Flexsteel in a June 10 letter to dealers. “This is driving us to the open market to ensure we keep inventory flowing to support our business.”
Yet rates don’t seem to be coming down even as those bookings are rescheduled. For example, Flexsteel told Home News Now that in mid-June, it received an increase that was $800-$1,000 higher than what its surcharge covers. On July 1, it is expected to increase another $500 to $1,000.
“Every two weeks we have an analysis,” said David Crimmins, vice president of sales and product management, adding that the company held off on increases earlier in the year only to see them level off then rise again — and potentially keep rising. “We don’t think we are at the peak yet. We don’t have any actions planned now, but if they keep climbing, we will have to raise it.”
Kuka Home told dealers it is adding a temporary freight surcharge of $2,500 on all landed shipments to the U.S., Canada and Mexico from its China and Vietnam facilities. It will be effective on shipments invoiced starting June 21.
Company President Matt Harrison said in a June 18 letter to dealers that the surcharges were introduced “earlier than usual due to various factors, including diversions in the Red Sea and trade imbalances necessitating the repositioning of empty containers worldwide. Additionally, major retailers are shipping their fall inventories earlier to avoid potential delays, further exacerbating the issue. The resulting lack of capacity and equipment has even compelled us to rent temporary warehouse facilities at exorbitant rates to store finished goods awaiting shipping documents.”
“It’s an unavoidable situation, whether it’s a landed customer or FOB customer. They are paying more for freight, if they want to get their furniture shipped,” Harrison told Home News Now. “I can tell you for a fact that major, major retailers are paying significantly more than they were in the past because they understand what they have been through in the past during Covid, and they need their furniture. They need their containers. So they are securing inventory at a much higher rate than you would dream they would pay right now, because we are grabbing capacity on our freight lines that we have contracted with.”
However, Harrison also noted that the surcharge the company has imposed is less than the charges the company is incurring. In the letter, he said that the company has been absorbing the additional charges for the past few weeks, but that “the latest increase has made it unsustainable for us to continue for our landed customers.”
“We are sharing that and that’s even at a loss,” Harrison said, noting that everyone got an increase on their contracts which expired in May, followed by a peak season surcharge June 1, with another one slated for July 1.
“It’s an unavoidable situation for everyone buying out of Asia,” Harrison said. “Furniture is a higher cube percentage than shipping clothing or something else where it affects us more for the cost of goods. It’s the reality.”
In the letter, he added that the company is “actively monitoring the situation and doing everything possible to mitigate this burden. As soon as conditions improve, we will adjust or remove the surcharge. Your business is greatly valued, and we appreciate your understanding during these challenging times.”
Other furniture companies interviewed this week also said they likely will raise prices or issue container surcharges sooner than later based on current and future container rates should they continue to rise.
Others still are taking steps to cut costs. Malouf, for example, announced a restructuring that took place last week that resulted in an unspecified reduction in force at its Cache Valley, Utah, headquarters. The company said this was related to external forces, including competition from online resources selling apparel and other fashion and home-related products including furniture.
“Through the years, we’ve prided ourselves on our nimbleness, innovation and early arrival in the bedding industry,” said CEO Sam Malouf. “However, the company must begin shifting focus from certain categories due to circumstances largely outside of our control. As a reflection of these category shifts, our senior leadership team made the difficult decision to reduce the workforce at corporate headquarters.”
“The playing field is no longer level or fair with the rise of platforms like Temu and Shein, which are decimating American companies,” he added. “We needed to make changes to thrive in today’s market. By increasing clarity and focus, we expect to improve market share and drive long-term success.”
Also, Hooker Furnishings recently announced in its latest earnings report that it plans to cut costs by about 10% in order to regain profitability.
And Hillsdale Furniture announced to the Vietnam government in late May that it was closing its Vietnam office effective June 1.
“Due to the difficult business situation of the parent company, leading to the inability to maintain the management and operation of the representative office in Vietnam, we have decided to terminate the operations of the representative office in Vietnam and are carrying out other procedures for dissolution/termination of operations according to Vietnamese law,” the company told government officials in late May.
The state of the company’s U.S. operations is unknown at this stage. Sources have said that the company also has closed its U.S. offices, but Home News Now has not been able to verify this as company officials have not responded to repeated calls or emails.
The greedy container companies seem to always have a reason to increase rates since Covid. They got away with it and keep taking advantage at every corner they can. Maybe it’s time we start making all furniture back here in America.