Rising transportation surcharges and product pricing started to take effect earlier this month and will continue into early February
HIGH POINT – Rising shipping costs, materials costs and labor costs are resulting in price hikes taking effect this month among many — if not most — case goods and upholstery importers and manufacturers.
That means retailers and their customers will soon be paying more for both import and domestic product that’s ordered and shipped from Jan. 1 on. And more increases could be on the way as some companies say they are still weighing whether or not to implement changes to their pricing structure in the months, or perhaps weeks ahead.
Rising transportation costs on containers — in some cases nearing $25,000 to the East Coast — are moving the needle, particularly relating to surcharges or other transportation-related costs suppliers are passing along.
Case goods importer Martin Furniture announced an increase the last week in December related to rising freight costs. Billing this as a freight surcharge, this applies to each product, with the company showing the price of the actual item, the surcharge for freight and the total cost for each piece affected.
“We have been very transparent with our customers saying, here’s where ocean freight is and this is how much we are passing on, which is not nearly all of it,” said Martin CEO Jim Goergen. “We are putting this in the price and you can see how much the freight is by item and by cube.”
He said the increase impacts items shipping now, versus items already in the warehouse.
“We have told our customers that we will re-evaluate this every month on possible changes up or down,” Goergen said, noting this would be based on the items that are shipping at that particular time. “So not every item gets affected – a lot of items we have had in inventory, which we were fortunate to get before the (Asia) shutdown and are all at our old freight rates. So customers still have the ability to buy those at the older prices.”
Motion upholstery manufacturer Manwah USA also recently announced an increase in its freight surcharge. Company officials declined to reveal specific numbers, but said the increase is part of an ongoing adjustment every couple of weeks that could either raise or lower transportation-related costs.
“We give everybody the average we come up with, and so far, we have been able to beat the market, allowing our retail partners to ship at a very, very competitive rate,” said Gabriele Natale, president of Manwah USA, noting that the company had a reduction in its surcharge about two months ago.
“We are not producing freight,” he said. “We are just managing freight. We are like everybody else held hostage by the shippers. Whenever we see an opportunity to reduce the cost of freight it is in our best interest to reduce the cost of freight.”
Sources say that spot rates for containers have been as high as $20,000 to the West Coast and $25,000 to the East Coast of late. But those costs too appear to be on the rise depending on how much companies are willing to pay to secure a container and space on a vessel moving forward.
One source said recent early negotiations with one shipping company that initially proposed a 50% increase in the contract rate are now double what they were this time last year. Spot rates could be 60-65% higher than that contract rate, the source noted.
At this point, Natale and others have said they don’t expect any improvements in shipping costs for the first half.
“Keep in mind, this is not a Manwah issue, it’s an industry issue,” Natale said. “As an industry, we have been held hostage by the shippers. And it doesn’t look like it is going to change any time soon.”
“We will tackle it and manage it like we have done all along,” he said, adding, “We feel it is about providing the best possible average and trying to beat the market.”
In a Jan. 3 letter to dealers, upholstery and case goods resource Lane announced a surcharge of $1.65 per cube effective Jan. 17 on all orders and shipments of imported products warehoused domestically. Meanwhile, domestic shipping costs will increase by $.30 per mile, effective Jan. 10.
“Incredible demand on the global supply chain continues to substantially impact domestic and global freight, causing diminished availability and record high costs,” wrote Jay Quimby, executive vice president, sales. “Lane has been proactively addressing the shortage of ocean freight. Fortunately, we have been able to procure more global freight to keep the raw materials flowing to support growth and reduce lead times. Unfortunately, to our dismay, we are seeing ocean freight contracts higher than 2021. This escalation of global freight impacts many key components of the products we produce. Also labor costs continue to rise in the communities we manufacture in. Virtually every component of the products we produce has inflationary pressure.”
Quimby was not available for further comment. However, in the letter he said that increasing freight and raw materials costs were also leading to price increases. For example, domestically produced stationary and motion recliners are rising by $14 per piece on any product ordered or shipped starting Jan. 17. And due to rising materials costs in Asia, all orders or shipments of case goods, lift chairs and pushback recliners purchased container direct from Asia will rise 5% rounded to the next dollar effective Jan. 17. Import motion groups purchased container direct will go up 3% rounded to the next dollar, also effective Jan. 17.
In addition, the company said, that some domestically warehoused, imported finished goods will have an increase on orders shipped after Jan. 17.
Like Lane, others also are implementing or have implemented price increases starting this month. Effective Feb 1, American Drew and Hammary are implementing an 11% increase on all case goods shipped from their North Carolina warehouse. Also effective Feb. 1, American Drew is implementing a 13.5% increase on all case goods shipped container direct.
Drew Sweeney, vice president, sales, marketing and merchandising at La-Z-Boy wood divisions Hammary and American Drew, was not available for comment.
However, in a Dec. 29 letter to dealers, he said, “The dramatic increases in the cost of freight are well documented, but most recently we have seen significant price increases from our suppliers primarily due to supply chain issues, raw materials, and escalating labor costs. As a result, we are now in the unfortunate position of needing to increase prices on our casegoods products.”
The increases do not impact October 2021 introductions, the letter noted.
Hooker Furniture announced price increases in early December. The company is raising prices 15% on new orders for case goods received starting Jan. 11, whether out of the warehouse or landed container direct. FOB containers orders are rising 10%.
For Hooker upholstery orders received starting Jan. 11, the company is increasing prices 10% on both warehouse and container landed orders. FOB container orders are rising 5%.
On both case goods and upholstery, there are no increases planned for October 2021 market introductions. The company also is not imposing surcharges on goods facing a price increase. It also is not imposing an increase on existing orders in house.
Mike Harris, president of Hooker Casegoods and Upholstery, told dealers in a Dec. 10 letter that historic levels of inflation are affecting just about every area of the business.
“Labor costs are up substantially to keep and attract the best team,” he wrote. “Freight expenses, both land and sea have increased to unimaginable levels with no indication of reversing course. Container costs alone have increased 94% from February and 25% in just the last two months. The impact of the pandemic shutdown on our factory partners in Vietnam has added significant and unanticipated costs for ongoing testing, treatment, labor retention, lost productivity, etc…These costs are in addition to the increases in raw materials we continue to see. The convergence, scale and speed of these collective increases put us in uncharted waters.”
“Complicating matters even more is the nonnegotiable position factories are taking on the implementation of these increases on our existing open orders forced by the supply chains that support them taking the same position,” he added.
Harris and others have said pandemic related shutdowns, particularly in Vietnam, have had a major impact that has just recently begun to surface in key markets such as the U.S.
“I think the shutdown in Vietnam had an impact none of us could have expected or imagined,” Harris told Home News Now, adding that the reopening starting around early October “has created an even larger increase in material demand, which has driven up first costs for everyone. And we all know what’s going on with freight and the volatility there.
“And none of those things unfortunately seem to be going away, so the only thing that will improve the current cost environment is increased capacity in terms of labor and in terms of space for those of us that import. So until we see some calming of those two elements and an improvement in both, I think you are going to see continued volatility. What we try to do is not overreact to these periods and try to absorb as much as we can until we believe there is not going to be an improvement and that we can’t absorb any more. But the big thing we have done all along through all of this is to be as infrequent with these decisions as we can because it creates a lot of disruption for our customers, and we are sensitive to that. We are trying to do everything we can to not complicate their world because we know it is equally or more complicated by the sheer number of people they buy from.”
Others said they too are implementing price increases, including Legacy Classic Furniture, Sunpan, Spectra Home to name a few.
Spectra Home recently issued a letter to customers alerting them to price increases on upholstery that are based on double digit increases on materials ranging from fabric and metal to wood frames.
“Materials costs have gone up substantially in the last several months,” said Jim Telleysh, senior vice president, referencing goods produced domestically and overseas. “Through the month of January we are seeing a lot of increases in pricing due to materials costs…they have taken a massive jump.”
Domestic labor costs have been another challenge.
“Just in the domestic factory the rate of pay is up,” Telleysh said. “If you are going to hire somebody new, you are paying them probably 30% more than you were a year ago. And if you don’t, they don’t come work for you.”
As there is little most companies can do regarding these price pressures, they are dealing with any fallout as it comes, including from frustrated dealers who’ve seen multiple increases in the past 12 months from many different suppliers.
“You just have to deal with it right now, and we will probably take some cancellations,” Telleysh said. “But what are we going to do? I am not going to sell them the product and lose money on it. We have to walk away from that business.”
Sunpan implemented an average four percent increase this week. As it is an average, some items could have gone up more and some could have gone up less, said Carl Lovett, national sales manager. This was based on an overall estimated seven percent increase passed along by the factories it does business with overseas.
“It is just pure costs at our factories,” he said of manufacturing partners in China, Malaysia and Vietnam. “Labor and materials have gone up but it is more materials than anything.”
Legacy Classic and sister youth furniture division LC Kids had a price increase effective Jan. 1 that ranged from 3% to 7% depending on the collection.
“We did it based on exactly what we got from each factory on each collection,” company President and CEO Neill Robinson said. He added that the increase was related primarily to rising costs on items such as MDF, rubberwood, veneers, finishing materials, hardware and glue and nails to name several key items.
He said the company did not apply the increase to the backlog, but rather on new orders received starting Jan. 1.
Robinson said freight rates have remained about $4 a cube the last eight months. But this could change over time as the company reviews its freight costs on an ongoing basis.
“We review our freight rates every 30 days and change that dollar per cube for ocean freight based on what we are seeing,” Robinson said. “Doing it that way gives us the ability to be fairly nimble so we don’t have to republish a price list. We don’t have to notify customers of a price increase; we can just let our reps know if we are moving the price per cube freight charge to $5 per cube or $6 per cube. Who knows where it will end?”
Part of price pressures moving forward in the next several weeks will depend on the amount of product places like Vietnam and China try to ship before the Tet and Chinese New Year shutdowns.
“We will review it in 30 days, and even if we are a little over $4 a cube, we will probably work with our logistics and transportation people to see what their forecast for February and March is before we raise it,” Robinson said.
Yet as he and others note, how much they will have to raise these rates or prices over time is anyone’s guess. The biggest issue likely will be rising freight costs as companies begin to renegotiate contracts in the next few months.
“There is a lot of pressure; container prices are way up again,” said Ed Teplitz, president of Theodore Alexander. “Everything we read is that they are continuing to rise. We had an (price) increase in July and depending on what we hear in the next couple of weeks, we may have to do another increase.”