A
Storm-Battered Supply Chain Threatens Holiday Shopping
The
economic effects of Hurricane Sandy are reverberating beyond areas
hit by the storm as businesses warn customers of delays, try to get
merchandise out of closed ports and face canceled orders.
CNBC,
5
November, 2012
In
addition to shutting down shipping terminals and submerging
warehouses, the storm also tangled up deliveries because of downed
power lines, closed roads and scarce gasoline in parts of New York
and New Jersey.
The
supply chain is backing up at a crucial time, just as retailers
normally bring their final shipments into stores for the holiday
shopping season, which retailers depend on for annual profitability.
“Things
are slowing down,” said Chris Merritt, vice president for retail
supply chain solutions at the trucking company Ryder. “This whole
part of the supply chain is clogged up.”
FedEx,
for example, has rented fuel tankers to supply its delivery trucks as
commercial gas stations run dry. Ryder has been hunting down rental
trucks to add capacity. CSX, the major railroad company, was
continuing to advise customers to expect delays of at least 72 hours
on shipments. And retailers ranging from Amazon to Diane von
Furstenberg have told customers to expect delays on shipments.
Many
economists expect the storm to shave up to half a percentage point
from growth in the fourth quarter. That is a big reduction, with
growth estimated to reach an annual rate of 1 to 2 percent before the
storm, and the economy facing other significant headwinds, including
fiscal uncertainty in Washington.
While
economic losses from the storm are expected to be significantly lower
than those from Hurricane Katrina in 2005, this storm’s impact has
been intensified because the Northeast is densely populated.
The
region is responsible for about $3 trillion in output, or roughly 20
percent of the country’s total gross domestic product, said Gregory
Daco, a senior economist with IHS Global Insight. “Part of what was
lost will be delayed, but part is lost forever,” Mr. Daco said.
Last
week, the Port Authority of New York and New Jersey reported that all
of its major marine terminals were closed by the storm. While parts
of the system have started to reopen, delays persist. The New York
area’s port system is the largest on the East Coast, and the third
largest in the nation. Last year, it handled $208 billion in cargo.
As
a result of the closings, delays may ripple through the holiday
season, according to Paul Tsui, chairman of the Hong Kong Association
of Freight Forwarding and Logistics. As of Sunday, almost all rail
service from the ports was suspended, terminals were damaged and much
of the ports’ equipment was being reviewed to see if it still
worked.
Several
customers with facilities in the New York area told him “their
warehouses are totally damaged, and presume the merchandise inside
will have to be reported lost to insurance companies,” Mr. Tsui
said.
“We
are now coming into the cutoff for seasonal orders for the
Thanksgiving and Christmas holidays,” he added, and companies that
missed shipment deadlines must either send products by expensive air
freight, pay a penalty to retailers for late shipments or face
canceled orders.
Mr.
Merritt of Ryder said he expected that some items that have already
been advertised for sales on the day after Thanksgiving —
traditionally the busiest shopping day of the year — would not get
to stores in time.
The
delays are hitting smaller merchants like Robert Van Sickle
particularly hard.
His
pet supply company, Polka Dog Bakery, was relying on a shipment of
cardboard tubes from China with a merry design, intended to hold
popular holiday dog treats. The products represent about 15 percent
of sales at the company. But the New York Container Terminal in
Staten Island, where the tubes arrived shortly before the storm, was
devastated, and Mr. Van Sickle’s freight forwarder has been unable
to track down the containers.
It
is too late to reorder the tubes from China in time for the holidays,
and Mr. Van Sickle has tens of thousands of baked dog treats piled up
at his Boston headquarters. Insurance will cover the cost of the
cardboard tubes, but not the finished products, and those payments
will not come close to making up for lost revenue.
Last
week, he was forced to call customers like L.L. Bean and tell them he
probably could not fulfill their orders. “Without this product,
we’re in trouble,” Mr. Van Sickle said. “I am a business owner
and this is pretty much my year.”
In
Cape May, N.J., Rich Layton’s six-week-old start-up, Layton Sports
Cards, was supposed to be shipping sports card orders all week. But
his apartment partially flooded, his Allentown distributor could not
find clear roads to get to him, and U.P.S. held his other deliveries
during the storm.
“It’s
thousands of dollars worth of cards that people were already paying
for,” Mr. Layton said.
As
the days passed, Mr. Layton spent $1,000 on cards at a local shop,
and gave most of them away on a live webcam feed to try to pacify
customers. “It pushed my entire business back five days, and I’ve
been begging and pleading with my customers to please be
understanding,” he said. He ordered replacement cards on Friday,
paying $170 for overnight delivery so he could start distributing
them to customers.
Wayfair.com,
an online home-goods retailer, said about 1,300 of its 4,000
suppliers were hit by everything from loss of power to flooding.
Niraj Shah, Wayfair’s chief executive, said his site adjusted,
removing two-day shipping offers for affected products and taking
some merchandise off the site.
For
suppliers who cannot get up and running soon, Mr. Shah said, “at
this point, it is too late to get more inventory in for the holidays.
If inventory’s gotten ruined because of flooding or they’re
closed for two weeks, to be honest, it’s a tough time of year for
that.”
Retailers
are facing smaller headaches, too. At REI, whose SoHo store lost
power last Monday night, employees took groups of customers around in
the dark last week, aided by headlamps and flashlights. While the
store was able to accept payments, its regular flow of merchandise
was thrown off. Once power was restored on Friday, employees had to
manually count and order merchandise, said Les Hatton, northeast
retail director for REI.
Grocery
stores and others that depend on perishable items are facing trouble,
as delays of several days in meat or produce deliveries can mean
ruined products. “They get impacted by the ability to access the
stores because the roads are not repaired yet, the traffic, the
ability to get even a truck driver to drive to the stores,” said
Kumar Venkataraman, a partner at the consulting firm A.T. Kearney.
As
for Mr. Van Sickle of Polka Dog Bakery, he has been struggling with a
sense of guilt for worrying about his dog food containers at a time
when the storm has destroyed homes and killed people. He is
considering repackaging the biscuits and donating proceeds to storm
relief efforts.
“It’s
been really difficult to take stock of what’s happening on the
ground in New York and New Jersey,” he said, “versus what’s
happening in my little office in Boston, where I’m calling my
important customers and saying, ‘I’m sorry, guys, I don’t think
you’re going to get any product’.”
This
story originally appeared in The New York Times
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