HIGH POINT — Many case goods resources that have been trying to manage the record-setting consumer demand for furniture are still facing challenges meeting that demand due largely to container availability that is affecting their source factories’ ability to flow goods to the U.S. market.
The issue is not only causing goods to sit in overseas warehouses, but also potentially slowing down production at factories when consumers want their product sooner vs. later. Thus backlogs — orders for goods not yet produced — continue to rise, while inventories in the U.S. start to dwindle due to the shipping slowdown.
In addition, both domestic and overseas producers alike are challenged to keep their workers healthy and on the job.
Reports of absenteeism have increased as the pandemic has entered a new phase. Sources also say that furniture manufacturing areas in countries such as Malaysia recently have been under lockdown due to a rise in cases, potentially further stemming production.
It’s a situation that many importers say they don’t expect to get resolved anytime soon, meaning at least not until the second half.
While this situation continues to frustrate companies struggling to get their goods at any cost — including paying container rates that are from double to nearly triple what they were a year ago — there is a silver lining, some say. As the logistics situation gets worked out, orders that begin to flow with more consistency hopefully by May or June could yield a positive second half in terms of revenue.
‘Watching the logjam’
Until then, many say they are watching the logjam with unease, hoping that consumer demand continues even amidst the distribution of a vaccine that could help bring the pandemic under control.
For many, the situation is a balancing act of keeping their domestic warehouses filled with product they can ship to retailers quickly. Sources say that is a challenge because goods get shipped out to retailers almost as quickly as they arrive.
Then there’s the challenge of getting goods to ship from the factory to replenish that stock. This situation is further compounded by container availability and cost, although most companies say they are paying whatever they need to get goods on a container.
Moe Samieian Jr.
“We were in a great inventory position up to May and June (2020), and then it started to go down,” said Moe Samieian Jr., president of Moe’s Home Collection. “We just hit our all-time low on Jan. 1. Now it is an uphill climb.”
He said delays in production time haven’t gotten much better from five to six months ago, a situation that is due to challenges ranging from labor availability in Asia to the flow of components such as hardware from countries like China, which is largely a result of the same lack of container availability the industry faces for finished goods overall.
“We are definitely struggling,” he said of the container situation. “We sometimes are having to wait three weeks for product to ship. And even if we can get a container, it is crazy expensive.”
Sources have noted that prices are almost triple what they were a year ago, rising from the low $3,000 range to more than $9,000 per container. One source said they were being quoted $10,000.
“Maybe rates will stabilize a little bit, but I don’t think it’s a quick fix,” Samieian said, noting that he doesn’t see the rate situation or logjam in flowing goods improving until the middle of — or even later in — the year.
Warehousing goods
The situation, sources note, is causing goods to pile up on the floor of Asian factories, which not only can slow down production, but also forces factory owners to pay to warehouse goods, thus limiting cash flow where they need it most: on materials, equipment and labor.
Sources note that this situation has caused extensive lead times, particularly for brand new goods.
Terry McNew
Terry McNew, president and CEO of Klaussner Home Furnishings, noted that lead times for new products are much longer than normal.
“There are several Vietnamese factories that are shut down because their warehouses for finished goods are packed,” he noted. “That has pushed out lead times to 150 to 180 days. It would normally be 60 to 90 days.”
The company also operates a domestic warehouse for case goods. However, due to strong demand as of mid-January, this facility had about half the inventory it had a year ago, McNew noted.
Others also cited higher lead times, particularly for new goods, not to mention dwindling inventories for inline merchandise.
John Iasiello
“Our normal lead times on new product used to be 90 days,” said John Iasiello, president of case goods resource Riverside Furniture. “Now they are 150 days. … Again, factories want to move finished goods inventory before they produce new product. They have limited capacity to store finished goods, so we are partnering with every factory to get finished goods as quickly as we can.”
He said this has caused the company’s backlog to be the highest it has been in the company’s history.
“Just like the factories, we want to get that backlog down, and we are doing everything possible to get the product shipped,” he said, adding that while he couldn’t reveal the amount of the backlog, it “hasn’t moved much in the last couple of months.”
He also noted that domestic inventory — notably on inline goods — is not where the company wants it to be.
For instance, like many other furniture companies, Riverside typically identifies the popularity of its line in terms of A, B and C SKUs or higher.
Iasiello said that Riverside’s A and B stock merchandise as of mid-January was about 40% of where the company like it to be, meaning that consumers sometimes have to get their third or fourth choice of items vs. their first or second choice.
Driving domestic business
Domestic manufacturers may have some advantage in the marketplace due to their proximity to their customer base and supply chain, particularly for North American hardwoods and veneers.
But that also depends on how much goods they import for the wood product line. They also could be susceptible to labor shortages and absenteeism a challenge that remains as COVID-19 cases have spiked in recent weeks.
While Bassett Furniture reported a strong fourth quarter with a 4.2% increase in sales and net income of $6.5 million compared with a loss of $5.14 million in the fourth quarter of 2019, challenges remain. That included a nearly $55 million backlog, which was 47% higher than the amount of unfulfilled wholesale orders at the end of the third quarter, noted Rob Spilman, chairman and CEO.
Rob Spilman
While he said in its latest quarterly report that the company began to chip away at its backlog at the start of fiscal 2021 in December, “Unfortunately, the lingering effects of the pandemic are not helping us. Our associates across all of our operating divisions — manufacturing, retail and logistics — are facing greater occurrences of COVID exposure or outright contraction of the virus themselves. Our suppliers of raw materials are experiencing similar situations in their daily operations, exacerbating the long lead times that they are already quoting.”
He said the situation is particularly problematic on the domestic upholstery side of its operation, due to interruptions in service from fabric suppliers. On the import side, he noted, the world wide shipping container shortage and “our inability to procure space on inbound vessels is pushing the receipt of badly needed sold merchandise out further than we have ever seen. Furthermore, the limited supply of shipping containers has created a bidding war for vessel space, making our established container rates contractual in name only.”
Alex Shuford III
Alex Shuford III, CEO of Rock House Farm, the parent of Century Furniture and other luxury brands, said that while Century’s case goods line is produced domestically, it relies largely on imported white wood cases and components that end up being assembled and finished in North Carolina.
He said the company’s backlog remains high due a host of factors namely the challenge of keeping up with incoming orders. This situation is complicated due to the ability to get goods and materials shipped from overseas to challenges involving absenteeism at the factory level.
He also noted that due to a tight labor market, there are nearly 80 positions the company is unable to fill right away. However, he said that this has allowed the company to create better efficiencies at its production facilities, thus allowing people to better use their manufacturing skills by reducing tasks such as materials handling or filling out paperwork.
Tangled supply chain
Still, much of the company’s case goods backlog situation has to do with pieces that include some imported items that can’t be shipped “because we don’t have the inventory. … The biggest issue right now is being able to get materials and overseas supply. And the container situation it is acute – it is as bad as I have ever seen it. At the ports and the facilities overseas they can’t get them and they are expensive.”
“Our backlog level is the highest I have ever seen it since I have been at the company for 20 years,” Shuford added, noting that it keeps growing every week, particularly as orders are released from credit holds.
He noted that the irony is that case goods sales could have grown twice as fast as the current rate during the current surge in demand.
“The domestic facility does buffer us a little bit; we still control more of our destiny than a lot of people do,” he said.
Still he added that 40% to 50% of its case goods sales are for products with some type of imported component. “Even though we do a lot domestically, the supply chain has gotten so entangled over the years so it’s not pure anymore.”
He believes the backlog situation ultimately will improve due to factors such as greater stabilization in the work force to greater consistencies in logistics and the supply chain. But he also believes it could take much of the rest of the year for that to happen.
Doug Bassett
Doug Bassett, president of bedroom manufacturer Vaughan-Bassett Furniture, said the company has managed to do well during the pandemic in spite of the challenges.
While the area in Galax, Va., where it is based has a tight labor market, he said the company has managed to hire as many workers as it can to increase production during a period of rising demand.
From July to December, for example, he said the company increased production by 50%. This was due largely to the fact that it was able to bring over 60 workers from its nearby Webb particleboard plant that it closed in August.
“That increase in workers was the reason we have been able to get production up,” Bassett noted.
He said the company’s backlog has risen slightly — from roughly one week’s worth of shipments to two weeks’ worth — but that it has been able to be in stock on roughly 70% to 75% of its line and ship those orders within about 48 hours.
He also noted that 95% of the company’s components are domestic, which allows it to avoid most of the supply chain issues being faced by Asian resources.
“The only exception is that we purchase an upholstered headboard panel and they have been slow because they have been unable to get the yarn they need out of China,” he said. “That only applies to a handful of headboard SKUs.”
Others that also control their production on the import side say they too are faring better than expected.
Reasonable inventory
Full-line resource Abbyson acknowledged that ocean freight and capacity combined with Chinese New Year have created supply chain challenges on imports in general. Yet while there have been no improvements in this situation in recent weeks, it said that it is prepared with large flows of inventory.
This is due largely to the fact it owns and operates its own 1-million-square-foot upholstery and case goods manufacturing facility in Vietnam, which has reached a current capacity of 1,800 containers per month.
This has allowed it to stock goods in the factory for immediate shipping. In addition, the company said, its distribution centers are “fully stocked and successfully supplying our retailers with 90% of our inventory on hand and ready to ship.”
Doddy Rafieha
“Abbyson’s supply chain system has been supporting a steady and healthy inventory flow, allowing us to carry high levels of stock and maintain distribution nationwide,” said Doddy Rafieha, executive vice president.
Yet while Abbyson has invested in manufacturing, distribution, technology and human talent to improve its flow of goods, the company said that the resolution of overall supply chain challenges will depend on the roll-out of vaccinations.
“Hopefully this summer, after Chinese New Year and once the pandemic is under control,” Rafieha said.
Kevin O’Keefe
Kevin O’Keefe, president of Napa Furniture and one of the company’s four owners, said that the case goods resource has a steady flow of inventory coming into its Lexington warehouse in the coming months. But, he said, that inventory tends to move very quickly once retailers know it’s available.
A bigger challenge he sees is getting containers to ship from the source factory in Indonesia.
“We are still having a problem getting booking confirmations to the factory,” he said. “That is our biggest challenge. … We have warehouse capabilities at the factory, but that space is starting to get filled up. That is one thing we are trying to prevent. We are actively trying to get these containers shipped so our production doesn’t slow down at the factory.
“Retailers are being very understanding of the situation,” he added. “Everyone is in the same boat where demand has outstripped capacity. Our factory is doing everything they can to increase capacity and they have done a great job in the short term.”
Don Essenberg
Don Essenberg, president of Legacy Classic and LC Kids, said he doesn’t see the situation improving until the container situation gets resolved. That includes getting its domestic inventory back to a more reasonable level.
“With the slow rate of incoming (product) it is not even close to being filled,” he said of the Lenoir, N.C., distribution center. “We also have inventory in the factories that is waiting to be shipped. … A lot of these factories are choking on inventory waiting for the containers to show up. It is like an auction: We are paying the highest price because we need to get these sold goods to the consumer.
“That is a big challenge right now because you can’t get containers. Logistics has become a critical part of the equation.”
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