Mercado | Insights - What goes up

Insight: First Things First – What goes up…

First Things First

What goes up...

September 5th, 2022   ·   By Rob Garrison

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Every week, Mercado CEO Rob Garrison pens his latest learnings from the supply chain industry as part of an on-going series. Each article aims to share a little insight into what's going on that week, and to help foster discussion amongst industry professionals across levels, geographies, and companies.
Many predicted the cost of transporting containers across the Pacific would begin to decline as the economy went from red hot to not so hot. Others thought the rates might hold as carriers have been been very successful in forming cartels - and using methods such as 'blank sailings' to reduce available capacity.

It appears to be the latter. In fact, Best Buy is already starting to do a victory dance. This The Wall Street Journal article by Liz Young cites comments from Best Buy's CEO Corie Barry on her earnings call. She states that they are "starting to see some signs that the market is stabilizing and moderating,”

In terms of moderating, my sources are telling me that rates from Asia to the West Coast are now in the $5000 range, and continuing to decline. In terms of stabilizing, the same sources are saying they are not having any issues getting space. Related, it was reported this morning that LA is down to an 8 vessel queue from well over 100 at it's peak. This is good news for importers. Hopefully it will become good news for consumers as well - who are looking for relief from inflation anywhere they can find it.

As we are now in what would normally be considered the peak of the peak shipping season, it's reasonable to expect further pricing erosion ahead.
Mercado | Insights - The $2.8T international supply chain visualized
"In an 'ideal' world, an importer would have at least one backup country, and one back up supplier for every critical product... All of this sounds good on paper, however it's actually incredibly difficult in practice."
One key reason is the dominance of China. Many importers are concerned about China as a sourcing point due to increasing tensions between the countries. However, the reality is that China dominates mfg in Asia, and they are very good at it.

As a result, quitting China is hard, as you will see in the excellent analysis below by Rita Rudnik.

A second reason is much more mundane. Most importers lack a robust database of their suppliers, and their supplier's suppliers. On the surface this sounds ridiculous, however we have gone through decades of 'predictable' supply chains where this wasn't a priority. Using the example above, most of the bike importers I spoke to were simply not aware of how reliant their suppliers were on Shimano.

My guidance to all importers is to address this database issue quickly. Beyond resiliency, knowing a lot about who makes your products, and who makes their parts, is also critical for understanding things like cost, ESG, and sales.

About the author

Rob Garrison, Mercado CEO
A highly accomplished Global Supply Chain executive with 25 years of experience, Rob Garrison has provided strategic vision and leadership to Fortune 500 companies. Rob has an impressive history of building agile, technology-enabled supply chains, and he has an established track record of forging high-growth partnerships, positioning organizations for success and launching innovative technology solutions that significantly improve end-to-end supply chain efficiencies.

Rob is currently CEO and founder of Mercado Labs.
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