To avoid empty shelves during the end-of-year holiday season, retailers in several markets are moving up their Q4 inventory, and they could be facing a greater need for working capital as a result.
Earlier shipments have increased demand for shipping about a month ahead of schedule, forcing freight costs up. In mid-July, shipping a 40-foot container cost almost four times higher than a year earlier, according to Drewry’s World Container Index.
Several ports are reporting higher volumes, too. For example, the ports of Seattle and Tacoma in the US saw the number of imported containers jump by 43% in June, The Wall Street Journal reported.
And because the shipments are arriving earlier than normal, carrying costs are higher now, too. Businesses are spending more to store inventory in warehouses for longer periods of time.
Why are companies ordering earlier than normal?
Several geopolitical factors are leading more companies to pursue earlier shipments:
- For several months, Houthi rebels in Yemen have been attacking Western ships in the Red Sea, affecting traffic through the Suez Canal. Ships have been forced to take longer alternate routes around Africa as a result. Only about 50% of global shipping is being completed on schedule.
- For a time, shipping through the Panama Canal was limited by a drought impacting Central America, though that has eased thanks to increased rains in the area.
- Some businesses are concerned about the potential for international tensions to lead to new trade wars, if not armed conflict. Case in point: US companies hurried to import larger quantities of electric cars and other clean-energy items from China ahead of new tariffs that take effect on Aug. 1.
The memory of the pandemic is also haunting businesses.
Retailers still remember when lockdowns and increased demand caused massive delays in shipping. They would rather run the risk of higher carrying costs and ordering too much inventory than head into the all-important fourth quarter without enough merchandise.
How can companies adapt to higher holiday shipping and carrying costs?
Having extra cash on hand is essential at times like these, when expenses are higher and borrowing costs are still persistently high.
There are many options for accessing funds, such as borrowing or using a factor. Many enterprise-class buyers sponsor supplier finance programs where companies can request earlier invoice payments.
C2FO Early Pay, for example, empowers suppliers to seek faster payment in exchange for a small discount on the invoice that’s being paid. In the first half of 2024, the average user received payment about 31 days ahead of schedule. Getting paid faster gives suppliers more cash on hand to manage higher operating costs.
The bottom line
Ordering early can help companies manage the delays and uncertainty that plague global freight right now, even if this strategy costs more. They just need to make sure it doesn’t put them in a cash crunch.
To increase your organisation’s cash flow, be sure to ask your larger customers if they offer any kind of early payment option. Search this list to see if any of your buyers currently offer C2FO Early Pay to suppliers like you.
