- Some hardlines retailers could face elevated costs and delays due to conflict on the Red Sea, according to a Jan. 10 note from Jefferies analysts led by Jonathan Matuszewski.
- The analysts cited Wayfair, RH, Beyond Inc. (formerly Overstock) and Best Buy that have “elevated global sourcing exposure” that could be affected by shipping disruption in the Middle East. Others, such as The Home Depot, Lowe’s and Tractor Supply Company, are insulated by their reliance on domestic sourcing.
- “Bottom line, investors should expect temporarily higher inventory levels from transit delays and higher costs from air freight, but few executives have signaled materiality,” the analysts said.
Armed conflict on the Red Sea has slowed ocean shipping in the region as carriers avoid the Suez Canal, forcing many shippers to find alternative routes or sources to avoid the trade lane. Ocean shipping rates have already spiked considerably amid the disruption.
The Jefferies team cited home furnishings giant Ikea, whose executives have said they expect delays and possible availability constraints for certain products, and is evaluating other supply routing options.
They also pointed to BDI Furniture, executives of which told Reuters that the company is front-loading orders and relying more on factories in Turkey and Vietnam, and is experiencing low stocks in some furniture categories.
Meanwhile, lighting manufacturer Acuity Brands — which sells to Wayfair, Home Depot, HD Supply and Lowe's — has referenced doubling container rates and the likelihood of elevated costs persisting through the year, according to the Jefferies team.
Diverse or close-to-home sourcing acts as a hedge from the Red Sea turmoil, the Jefferies analysts pointed out multiple times, strategies that have been echoed elsewhere as well.
For U.S. importers, goods moving from Asia to the East Coast are most affected by conflict and shipping slowdown, experts have noted. Many of those shipments are being rerouted through the Cape of Good Hope in South Africa, but that can add thousands of additional miles and hundreds of thousands of dollars in fuel costs.