HIGH POINT — Could we be witnessing the beginning of an end to the industry’s long supply chain nightmare? Probably not. But retailers might want to applaud at least one piece of good news for a change.
Asian upholstery producer Manwah declared Oct. 1 “Surcharge Decrease Day.”
In a letter sent to retailers Friday, Gabriele Natale, president of Manwah USA, said “Today is the day we have been waiting for for a long time.” Effective Oct. 1, the company decreased its shipping surcharge to $5,000 a container from the previous $6,500 retailers were paying.
This was the first decrease in the nearly 18 months since Natale joined the company, he told Home News Now. Since his arrival, Manwah has had to pass on three price increases and four surcharge increases. “This was the first time we were able to turn around and do something on the positive side,” he said.
While everyone will take this win, Natale wasn’t ready to call it a trend just yet, noting in the letter, “this container situation changes every two weeks (and) continues to be a rollercoaster ride as we are held hostage to the demands of the shipping lines,” but he added the company has done everything it can to minimize the impact to its retail partners.
He later told HNN the U.S. ports continue to be the “choke point” slowing everything down and hurting the chances of a gradual return to any broad price and cost stabilization. The port congestion is the starting point (on the U.S. side, at least) for a domino chain of logistics problems, including shortages of truck chassis and drivers, he said. It’s what tames any long-term optimism Natale might otherwise wish to project.
“That (port congestion) is the biggest challenge we face as an industry, and I don’t see anybody coming up with a good solution,” he said. “That’s probably the reason why the leveling in prices will not happen anytime soon.”
As if to reinforce this point, minutes after Natale made that comment, HNN obtained another letter to retailers, this one from Mississippi-based upholstery maker HomeStretch, reporting that it’s increasing its “tariff surcharge” to 26% from the current 22% effective with shipments beginning Nov. 1.
So much for a positive trend.
“Raw material and freight costs have continued to increase over the past 60 days to the point that this additional 4% surcharge adjustment is necessary to cover the additional costs we are incurring,” HomeStretch President Skipper Holliman said in the Oct. 4 letter.
Holliman went on to say the company remains in decent shape from a supply chain standpoint thanks to inventory investments it made in the spring. But, “The increasing container ship backlog at the LA ports is very concerning and it is impossible to know at what point we will see container shipping times return to normal. Until that time, we will keep investing in additional inventory to ensure that we are able to operate production lines with minimal disruptions.’
So how is it, then, that Manwah was able to lower its surcharge in this environment? Natale said it’s because Vietnam had been shut down for the better part of six weeks until more vaccines went into arms and things started loosening up most recently. That shutdown led to lower demand for containers and thus lower prices. “The number of containers we had to buy at spot rates was lower,” he said, and that means Manwah’s average container rate went down.
We passed it on immediately,” he said. “We’ve been telling everybody since the get-go, we’re passing on cost, we’re not making any money on freight,” he said. It has been doing so without hesitation. And in this case, Manwah was just as quick to pass on the first savings, too.
Just as Manwah was at the forefront in warning retailers back in July about the halt in its Vietnam production and expected delays following a government-mandated lockdown, now it’s back up front with the little good news this industry has seen during this supply chain disruption saga.
In addition to announcing the $1,500 surcharge decrease, Natale updated retailers on where Mawah stood in its effort to get workers back in its Vietnam factory, (“we have been making good progress at that end,” he said) and on the all-important actual production reboot.
“We are now producing 40 containers a day, increasing that number weekly,” he said in the letter. (And this week, Manwah is up to 50 containers a day, he told HNN). Roughly 4,000 of Mawah’s 8,500 Vietnam workers are now back on site, though Natale said some are still in the seven-day quarantine phase following vaccination.
He couldn’t say for sure how long it would take to get all employees back to work, but things are definitely moving in the right direction production-wise. For the month of October, Manwah’s outlook calls for a total of 2,000 containers produced in Vietnam “and we think we’re going to be able to hit that number,” Natale said.
Add to that another 2,000 containers of goods that will come out of China this month, and that should put the company at roughly 90% capacity,” he said.
“If everything goes to plan, in November we’ll be at full capacity.”
In the letter, Natale said Manwah’s China factory “continues to supplement our customers’ needs, and we have made adjustments to the recent energy concerns,” China’s power network has been under stress for some time, partially because of a coal shortage, leading the Chinese government to set power restrictions, cutting and curbing power to factories, classrooms and other operations.
But Natale said Manwah operates one of the most sophisticated solar energy systems in the country, “so that’s offset a lot of it and we’ve been able to operate our facility at 100%.”