US companies brace up for supply shortages

cargo container lot
Photo by Chanaka on Pexels.com

U.S. companies are loading up on costly inventories, as a new wave of Covid shutdowns in China are threatening global supply chains.

Kent International, Inc, a New Jersey-based wholesaler and manufacturer, has about a 10-week supply at its three warehouses in California, South Carolina, and New Jersey, compared to the pre-COVID normal four to six weeks of stock.

“The supply chain for bicycles has caught up,” said Arnold Kamler, the CEO, as reported by Reuters.

Many U.S. companies are in the same position. Inventory levels have gone up in recent months, as U.S. port congestion eased and supply chains have begun to untangle.

Wholesale inventories surged 19.9 percent in February on a year-on-year basis, according to figures released by the Commerce Department on Thursday. They were up 2.5 percent from January.

Most economists predict inventories could continue the upswing since inflation-adjusted inventories remain below their pre-pandemic levels. Inventory-to-sales ratios are also low.

The challenge now is the latest shutdown in China, which is clogging highways and ports and stranding workers inside factories or shutting down production.

Some U.S. companies have built up inventories with an eye on grabbing market share from competitors who did not move as fast to refill shelves.

Automatic Pool Covers, Inc in Indiana, for instance, is now sitting on three times as much inventory as it held before the pandemic.

Michael Shebek, the company’s CEO, said he was able to do that by sharply expanding the number of suppliers he used to order materials and parts. For now, Shebek said having extra inventory has given him “a competitive advantage over those who don’t have it,” he told Reuters.

Kamler, the CEO of Kent, said there is also a dark side to holding all those goods. “The cash issue is the one nobody talks about,” said Kamler.

He estimates that he’s now paying U.S. Customs $4 million to $5 million a month in duties on his imported bicycles. The higher cost of ocean freight — which shot up during the pandemic and remains elevated — also remains a burden.

Before the pandemic, Kamler said he paid $2,000 to ship a container from China to one of his U.S. warehouses. His shipper just notified him that on May 1, that rate will go from $5,000 per container to $9,000.