Holding excess inventory keeps getting pricier for this manufacturer
A year ago, the global supply chain was a tangled web of backups amid China’s pandemic lockdowns and skyrocketing shipping costs. For manufacturers today, those woes are starting to disappear in the rearview mirror as China has ended its Zero-COVID policy and the Port of Los Angeles has seen zero backups since Nov. 22, 2022, according to the Marine Exchange of Southern California.
The snags for big manufacturers are now happening more stateside, with rail delays and rising warehouse costs keeping companies on their toes. The Producer Price Index for the delivery and warehouse industries has jumped since last summer. For the Legacy Companies, a manufacturer and retailer of kitchen supplies and appliances, the story’s no different.
“There’s just not enough warehouse space to go across. So warehouse costs have gone up, just in the last two years, probably about 25%,” said Teresa Asbury, president of Legacy Companies’ commercial division.
“Marketplace” talked with Asbury almost a year ago, when supply chain issues were presenting big challenges to the company. She’s back on the program to give an update now that things are running a bit more smoothly. The following is an edited transcript of their conversation.
Kai Ryssdal: So we have called you for a supply chain update. Because last time we talked to you, I think you refer to shipping costs and your supply chain crises as highway robbery. And I wonder how things are going now?
Teresa Asbury: Well, good news. I do remember the last time we talked, you are very right. I did call it highway robbery. So the good news is at the time, when we spoke, we were paying about $23,000, a container that was at about the height of it. So now we’re paying about $5,700 to the east coast, and about $3,600 to the west coast. So significant improvements. I sounded a bit like doom and gloom, the last time I spoke, but certainly happier to not be sounding like that any longer.
Ryssdal: I bet. But let me ask you an availability question. So you can do it for $3,500, you know, roundabout. But if you’ve got a load in Shanghai that needs to get to LA, can you get in on a container like now? Or do you have to wait a week and a half?
Asbury: More good news there. Right now, we’re not really experiencing any delays, we’re getting the containers that we need, and we’re getting them at reasonable costs.
Ryssdal: OK, let’s continue through the logistics chain, you get stuff on the container, it gets on a ship, it gets to the Port of LA, where we know from other reporting that we’ve been doing that the backlog is gone. So you get it onto the wharf. And then what happens?
Asbury: Then we can experience some delays, there’s some trucking delays, there’s definitely rail delays, we’ve really transitioned our business, our inland business away from rail, we used to do quite a lot of rail a year ago, maybe a little bit longer ago. But it’s become very inefficient, it’s become very costly, and it’s become fraught with delays. And it just made it much more preferable to ship via truck than via rail.
Ryssdal: Interesting. OK, next up would be a warehouse, talk to me about you know, holding your stuff until you actually get it to your customers.
Asbury: Now, there we are seeing a little bit of difficulties or a little bit higher costs. So we have an example of this. We have a warehouse in Hamilton, New Jersey, which is a great place to have a warehouse. It’s between Philadelphia and New York. But the problem is that a lot of other folks are looking at that area for warehousing. And with the excess inventory that ourselves due to supply chain issues that we had previously and others are experiencing, there’s just not enough warehouse space to go across. So warehouse costs have gone up, just I’d say in the last two years, probably about 25%.
Ryssdal: So let’s talk about two of those things. You mentioned No. 1 excess inventory, how much of it do you have? And sorry, work with me on this one, the older inventory that you have the stuff that came in when prices are high, that’s more expensive to you, and you don’t want to take a loss when you sell it right?
Asbury: Unfortunately, it is more expensive to us. But you know, we’re also in the position to move inventory and not sit on inventory. So unfortunately, there does come a point where you do have to reduce your cost, you’re probably not enjoying the margins you would like to, well, you’re certainly not. But you have to move inventory.
Ryssdal: How long do you figure it takes you to work through your excess inventory, right? Because that figures into GDP and you lock all those?
Asbury: Yeah, that really is the question, isn’t it? We are expecting to be really out of most of it by the end of say, the middle to the end of Q2. And when I say excess inventory, it is excess inventory, but it’s not liquidation inventory. It’s just that we have too much of it.
Ryssdal: More time in question, then I’ll let you go. How long do you figure if at all? Things are like back to normal for you?
Asbury: Yeah, that’s a really good question. I wish I had a crystal ball. Right. Well, I really I’d like to say that things are going to normalize in 2023. You know, we had a good 2022. The restaurant industry, which is part of the industry that we play in certainly not the entire industry, but certainly a big part of it, experienced a very good year in 2022, we had a lot of pent-up demand. So while we might not see that high double-digit growth for 2023, we do expect it to normalize to, you know, pre-COVID levels, which are pretty standard for our industry.