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Costco has chartered three ocean-going vessels for use next year in an effort to bypass some of the shipping and transportation bottlenecks that continue to emerge in the wake of the coronavirus pandemic.
Richard Galanti, chief financial officer of Costco, has named supply chain and inflation as two of the retailer’s biggest issues today.
They led the company to pay at least double what it previously paid for containers and shipping, and support an estimate that overall price inflation for products sold by Costco is between 3.5 and 4.5%.
In an earnings call Thursday, Galanti listed the factors putting pressure on the supply chain and inflation. These included port delays, higher costs for labor and freight, increased demand for certain product categories and higher products, 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 paid for containers and shipping, Galanti said, although the company has continued to work to “mitigate cost increases in different ways and maintain and / or mitigate our price increases. forwarded to members ”.
Costco had chartered three ocean-going vessels – and had leased “several thousand containers” for use – for next year to move containers between Asia and the United States and Canada, Galanti added. Each ship could carry 800 to 1,000 containers at a time and would make ten deliveries in 12 months.
Such a move should help protect the company against further increases in shipping prices and provide more certainty in getting its products to market.
In a series of “inflationary sound bites,” Galanti said prices for pulp and paper rose 4-8%, while prices for many plastic products rose 5-11%. The prices of some clothing items rose 3-10% and fresh produce inflation was in the “mid to high digits,” led by meat.
Galanti said Costco now estimates the overall price inflation of the products it sells at 3.5-4.5 percent, down from a “best estimate” in March of 1 to 1.5 percent.
Costco wasn’t the only one among retailers who brought forward orders for the holiday periods in an effort to overcome bottlenecks, and Galanti said the company continues to do so, not just with toys and seasonal items, but “anything you can get your hands on”.