Costco to charter 7 vessels for Transpacific routes

UPDATE: March 15, 2022: Costco will charter a total of seven ocean vessels over the next three years, up from the three charter ships the company announced in 2021, CFO Richard Galanti said in a Q2 earnings call. The vessels will provide Costco with about a quarter of its annual Transpacific needs, transporting containers between Asia and the U.S. and Canada. The move will provide Costco with "additional supply chain flexibility," said Galanti.

Dive Brief:

Costco is chartering three ocean vessels to transport containers between Asia and the U.S. and Canada over the next year, CFO Richard Galanti said on the company's Q4 earnings call.
Galanti said the chartered ships represent "less than 20% of our Asia shipping," and will make an estimated 10 deliveries in the next year. Each vessel can carry 800 to 1,000 containers at a time, the CFO said.
"Containers, trucks and drivers all are impacting the timing of deliveries and higher freight costs. Despite all these issues, we continue to work to mitigate cost increases in a variety of different ways," said Galanti.

Dive Insight:

Using chartered ships isn't common practice, but the current supply chain environment leaves retailers with limited options. Companies are taking extraordinary measures to have control over their cargo and have inventory arrive on time.

Port delays, container shortages, disruptions from COVID-19, shortages of supplies, limited availability of trucks and drivers, and labor costs are among the factors "pressuring supply chains and inflation," Galanti said. "Even on a domestic side, various major brands are requesting longer lead times"

As a result, Galanti said Costco is limiting key items and leasing several thousands of containers. It's also ordering products early, as delayed shipments are an issue for Costco and other retailers navigating today's ocean freight environment.

Disruptions in the ocean shipping industry led schedule reliability to drop to an all-time low of 33.6% in August 2021, according to Sea-Intelligence data from the past 10 years.

Costco is among other retailers now chartering ocean vessels to help ensure products arrive on time in the U.S. for the holidays. Walmart, Dollar Tree, Home Depot and Ikea have taken a similar approach.

The rush to charter ships led the market to reach new heights in 2021, as vessels available for lease were also limited. But while the tactic helps guarantee space, it does not ensure on-time deliveries: the vessels have to unload somewhere.

"If holiday imports increase ... with over 60 vessels outside of LA/LB, port congestion will eventually force carriers to reposition vessels, blank sailings that could cause additional disruptions," states an emailed Q4 outlook from S&P Global Market Intelligence's Panjiva.