Dive Brief:

• The Container Store pegged a double-digit slide in its margins on increased shipping costs as the company posted a 98% YoY increase in online sales, Chairwoman Melissa Reiff said on the company's earnings call Tuesday.
• Some of the retailer's increased transportation costs were the result of an uptick in online sales, which were affected by surcharges put in place by third-party-logistics providers, according to the company's financial filings.
• "We certainly saw headwinds related to the higher mix of online sales, incurring a lot more in shipping costs than we originally expected," Chief Financial Officer Jeff Miller said. "And the third-party surcharges we are experiencing on freight were much more impactful than we originally thought."

Dive Insight:

The Container Store's earnings call accentuated the reality of shifting to a greater mix of e-commerce sales at a time when demand for shipping and logistics is stressing carriers, which are using surcharges in an attempt to manage limited capacity. And it underscored the financial strain these surcharges can put on shippers.

"We're seeing [freight pressure], both in shipping costs and the cost to get our goods to us," Miller said.

The Container Store didn't say what logistics provider it was using. But the surcharge environment that it saw eat into its margin in the last quarter were referred to by FedEx as the "new normal" last July. And FedEx announced new surcharges last month that will affect its customers that shipped more than 30,000 packages between Jan. 3 and Jan. 31. UPS has put similar surcharges in place.

But footing a 3PL bill requires a company's cargo to first make it through a port facility.

"There are broader industry freight dynamics that we and others are navigating, in the form of higher freight rates and container costs, port congestion, and related delays," Reiff said.

Congestion at West Coast port locations has resulted in longer lead times for shippers awaiting orders as ships have to anchor to wait to berth, and dwell time for landed containers has elongated.

"Our teams continue to navigate these headwinds, adjusting lead times where possible to minimize interruption," Miller said of supply chain disruptions.

Reiff said the company has responded by building safety stock and expanding lead times. In some cases, though, it has left the store without some items in its inventory.

"We're negotiating with our different vendors," Miller said. "We're also seeing situations where customers may come in, they may not have the product they want because of the disruption, but they're picking and choosing something else."

But The Container Store executives said the company saw some supply chain efficiencies in the speed of delivery to customers as a result of a second distribution center it has opened. The company mentioned the distribution center on its earnings call this time last year also, saying the facility, based in Aberdeen, Maryland, was fully operational by November 2019.

"Overall, we expect to ship about 60% of total unit volume for stores and direct-to-customers out of our Dallas DC and about 40% out of our Aberdeen DC," Reiff said last year.

"First, from a customer perspective, it satisfies their growing desire for quicker delivery times," Reiff said. "And from an operational perspective, it further increases our capacity to fulfill our online orders. The additional capacity will also position us well when opening more new stores in the future."

Miller said the company expects the increased mix of e-commerce shipments to continue into the current quarter, along with the increased shipping expenses that come along with those purchases.