Dive Brief:

• Crafts and fabrics retailer Joann is having trouble obtaining vessel space for its cargo due to high rates and a lack of carrier capacity, executives said on the company's Q2 earnings call.
• Normally during peak season, Joann has 50% of their vessel space contracted. CFO Matt Susz said now, the company is fortunate if they can have 20% or 25% of needed capacity under contract. The company is also paying up to 10 times their historic average container rate, according to CEO Wade Miquelon. 
• "Ultimately, we expect these near term supply chain headwinds will prove to be transient and they will ultimately become tailwinds," said Miquelon. But with peak season, Chinese New Year, and potential labor negotiations approaching, Miquelon did not expect the freight environment would normalize soon.

Dive Insight:

The limited space to ship cargo on vessels and the ongoing stressed supply chain are contributing to high freight costs. And costs right now are "astronomical" as demand exceeds carrier capacity, according to Susz.

Port bottlenecks and a lack of equipment are contributing to the increase in shipping rates. As demand shows no sign of slowing, carriers doubled container ship orders to try to meet demand.  

Other retailers are facing similar issues with securing vessel space. Dollar Tree assumed ocean carriers would fulfill 85% of contractual commitments after Q1 2021. "However, we are now projecting that our regular carriers will fulfill only 60% to 65% of their commitments," said CEO Mike Witynski.

While some retailers pay a higher price to guarantee space on a vessel, bottlenecks across the supply chain mean cargo may still not arrive on time.

Despite challenges, Joann has been able to obtain bookings for ocean freight on over 90% of merchandise that is needed for the peak season. But this is coming at a heavy cost, as the company is paying additional fees to move products through congested ports and rail networks.

Joann expects to see a $30 million incremental impact from these disruptions. "Of this $30 million incremental amount, $8 million is related to transloading and rail system issues," Ajay Jain, director of investor relations at Joann, said in an email.

"So $8 million to just to take it off of one container and put it on another truck, which has never been done before. But if you want the product, in some cases, that's what you have to do," said Miquelon.