Costco has chartered three ocean-going vessels for use next year in an effort to circumvent some of the shipping and transport bottlenecks that continue to emerge in the wake of the coronavirus pandemic.
Richard Galanti, Costco’s chief financial officer, singled out supply chain and inflation as two of the biggest current issues for the retailer.
They have led to the company paying at least double what it used to for containers and shipping, and underpin an estimate that overall price inflation for the products that Costco sells is running at 3.5-4.5 per cent.
During an earnings call on Thursday, Galanti listed the factors that were putting pressure on the supply chain and inflation. These included port delays, higher costs for labour and freight, increased demand in certain product categories and higher commodities, as well as shortages of containers, components (such as computer chips and chemicals), raw materials, trucks and drivers.
“It’s a lot of fun right now,” he said dryly.
Costco and its suppliers were now paying two to six times what they used to for containers and shipping, Galanti said, although the company continued to work to “mitigate cost increases in a variety of different ways and hold down and/or mitigate our price increases passed onto the members”.
Costco had chartered three ocean-going vessels — and leased “several thousand containers” for use on them — for the next year to transport containers between Asia and the US and Canada, Galanti added. Each ship could carry 800 to 1,000 containers at a time and would make about 10 deliveries during 12 months.
Such a move should help insulate the company from further increases in shipping prices and offer more certainty in bringing its products to market.
In a series of “inflationary sound bites”, Galanti said prices for pulp and paper goods were up 4-8 per cent, while those for many plastic products were up 5-11 per cent. Prices for certain apparel items were up 3-10 per cent and fresh food inflation was in the “mid- to high-single digits”, led by meat.
Galanti said Costco now estimated overall price inflation on the products it sells to be 3.5-4.5 per cent, compared with a “best guess” back in March of 1-1.5 per cent.
Costco has not been alone among retailers that have brought forward orders for holiday periods in an effort to beat bottlenecks, and Galanti said the company was continuing to do this, not just with toys and seasonal items, but “anything you can get your hands on”.