Big, bulky and heavy. Furniture has been one of the biggest casualties of the global shipping and supply chain crisis as costs to transport a sofa or table are much higher than an iPhone or a pair of sneakers. In some instances, container costs for sofas, tables and chairs have risen as much as 1,200% since the start of the pandemic, forcing furniture retailers to raise prices.
If you think about the size of an cell phone and how many of those you could fit in a container and you think of the size of furniture, the cost per product really does shoot up. It means companies largely face an unenviable choice — absorb the extra costs and take a hit to profit margins or increase prices, which could weaken demand for their products.
The main problem for European and US retailers, reports Financial Times (Feb. 14, 2022), has been their reliance on China, which manufactures everything from cheap sofas and garden tables to flat-pack items made from chipboard. The rocketing transport costs have prompted some European and US retailers to move some of their manufacturing operations closer to home and their customers, known in Chapter 2 as “nearshoring” or “reshoring.”
British-based furniture retailer DFS, which makes 40% of its sofas in England, is also increasing the amount of automation in its domestic factories, citing benefits of higher quality, greater control over the supply chain and lower lead times. Other European retailers, hit by long delivery times from Asia, have relocated production to countries nearer home such as Poland, Lithuania and Latvia, which have advantages because of the low cost of labor and access to raw materials such as wood.
“If you’re looking at nearshoring of wood products, then you’re looking at countries with a lot of forests,” said one industry expert. Sweden’s Ikea, the world’s biggest furniture retailer, sources many of its goods from Poland, where a fifth of its products are made, and other countries nearby. However, even Ikea has been forced to plug gaps in the availability of some of products by using trains and chartering ships from China.
Classroom discussion questions:
- If nearshoring is so important, why did furniture imports from China increase 30% last year?
- Click to enlarge the furniture value chain graphic above. How does it relate to the concept of nearshoring?