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High Point — When people talk about Latin America as a great place to source furniture, they consider its location a key strength, particularly compared to Asia, where long flights and container times on the water are the norm.
But in some cases — Brazil's in particular — that strength has diminished, thanks to container shortages and limited shipping capacity in that part of the world. Last year, that caused a combination of shipping delays and higher container prices, which left many wondering whether Brazil will remain a viable source.
"It was a great value, but if you couldn't get it to the store, then what good was it?" asked John Conrad, vice president of merchandising for Powell Co., which has sourced youth and accent furniture from Brazil for several years. "It got real pricey and problematic. There were problems in shipping containers for anybody."
Normally, Conrad estimated, it takes from 17 to 21 days to send a container from Brazil to an East Coast U.S. port such as Wilmington, N.C., or Norfolk, Va. That compares with about 21 days on average from China to the West Coast, and several more days to the East Coast.
With container shortages and some port strikes, it took an additional two or three weeks, or longer, to ship product from Brazil during the second and third quarters of 2004. That virtually eliminated any logistical advantage that Brazil had over China.
"It was horrible at one time," said Tony Bikhazi, executive vice president for the U.S. and Latin America for Globe Express Services, a Charlotte, N.C.-based logistics firm. "This thing happened suddenly and importers were not ready for it."
Delays 'a real issue'
James Dawson's company, Dawson Furniture, imports youth bedroom, home office, curios and casual dining from Brazil. He said it normally takes 75 days from start of production to get the product delivered to a warehouse in Missouri. With the container shortage last year, he said it took as many as 120 days.
"It was a very, very real issue," Dawson said.
Such issues were not nearly as pronounced in Mexico, where many companies have plants within a half-day drive or less from the U.S. border. That not only reduces shipping time — five to seven days to a U.S. retailer is typical — it also can lower shipping costs.
"All of the freight from Brazil comes on the water, but from Mexico it comes across on land, and that dramatically reduces our freight costs," said Brett Magdovitz, vice president of Transworld Inds., which primarily sources metal beds from Mexico.
Shipping costs increased worldwide last year, Mexico and China included. But the price increases were particularly acute in Brazil at a time when demand for ships and containers remained high in China. Also, some furniture demand had shifted to Brazil at the height of the antidumping debate on Chinese-made wood bedroom furniture.
Adding to the squeeze was a big jump in total Brazilian exports, believed by observers to be about 28% in 2004. Most of the available containers and ships were allocated to the main port of Santos in Sao Paulo, instead of to the smaller ports of Sao Francisco do Sul and Itajai in southern Brazil, where most of the furniture is made. Santos is more than 1,000 kilometers, or a days drive, from Sao Francisco do Sul, and many of Brazil's rural roads can't handle much freight.
"Brazil's infrastructure was not ready for a big increase in exports," said Otto Valdes, a Latin America logistics expert for Global Link Logistics, a Tucker, Ga.-based logistics management firm.
In addition to three general rate increases on containers, there also were peak season charges and other charges the government imposed for port improvements.
Container costs jump
This virtually eliminated any shipping cost advantage Brazil had over China. From early 2004 to September, shipping costs from Brazil jumped from about $2,300 for a 40-foot cube container to around $4,000, Valdes said. Container costs from China in some cases were lower than those coming out of Brazil, said industry officials familiar with shipping costs.
David Sisk, president of leather upholstery importer Saddle Creek Leather, said when his company started sourcing from Brazil two years ago, it was paying a freight rate of about $3,000 per container. By December 2004, it was closer to $4,700.
"The most difficult part of sourcing from Brazil is the logistics side of it," Sisk said. "The freight is more expensive from Brazil than it is from China. You would think it would be less out of Brazil."
It's no wonder there were shipping problems. "Some of the cargo was left (waiting) at the port," Valdes said. "In Itajai, there were containers stacked on the road."
Observers said rates currently have started to come down several hundred dollars per container amidst an increased supply, but could rise.
"In Brazil, you see increases every quarter," said Chad Rosenberg, CEO of Global Link Logistics. "They don't have stability from a logistics standpoint."
Experts expect shipping capacity will increase this year. That could benefit Brazil and countries such as Honduras, Chile and Argentina, which faced similar woes in 2004.
"We have heard that some steamship lines are adding capacity," said Bikhazi, of Globe Express Services, which works with an agent in Brazil called Fast Cargo. "That should reduce or eliminate capacity problems from that region."
Experts said Brazil also will need to improve its ports and road network.
"Unless they are able to bring their infrastructure up to par with modern terminals in China very quickly, and allocate a lot of their fiscal resources to infrastructure, they are going to lose (more) market share to China," said Valdes, of Global Link.
Keith Koenig, president and CEO of Fort Lauderdale, Fla.-based retailer City Furniture, said his chain has gotten product from Brazil and generally been pleased with the quality and value. But he plans to cut back because the "logistics are terrible."
"We have had tons of containers sitting in the ports in Brazil for two, three, four weeks before they can ship," he said. "It is very disappointing. Product we developed and wanted to keep buying we are not able to flow. If we can't keep it in stock, we don't carry it."
Now City is looking to source that product elsewhere, possibly China, Koenig said.
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Proximity to U.S. market can be an edge--or not
Mar 11, 2005
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