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Proposed solution for Costco’s shipping setbacks

Aleksei D. Krasnozhon

ENGL 10803

Dr. Stacey Said

October 27, 2021

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Can the supply-demand complications brought by the pandemic be solved or will we see

empty shelves for the holidays this season? The growing concern over shipping delays is not

going away, and there have been some worries in the U.S. about the availability of holiday

goods. Recently Costco implemented restrictions on certain essential items in certain stores to

avoid possible shortages caused by the shipping delays (Costco, 2021). Other retailers are

growing concerned about their supplies, and a few major retailers such as Target and Amazon

began their holiday shopping deals in October (Doniger, 2021). Disruption of shipping, the

national labor shortage, shopping limits and limited availability of goods are primarily caused by

the COVID-19 pandemic. There is no easy solution to solve the Covid-19 pandemic, but there

are solutions to the shipping delays. Costco is chartering more cargo ships because it will ensure

delivery of products on time, prevent further delays and avoid a price increase. 

There is a great strain on the supply-demand chain, but charting private ships in order to

deliver goods is the best temporary fix Costco and other major retailers can implement (Leticia,

2021). The shipping costs from third-party companies are rising. Since July of 2021, the cost of

shipping one container from China to the U.S. has doubled in price to a staggering $20,586

(Lynch, 2021). Even if the companies could pay the price, there is no guarantee that the goods

will be delivered on time. However, chartering ships is not a cheap option either. Chartering a

ship that carries three thousand containers can cost up to $40,000 a day, and that is without the

price of operating the ship and renting containers (Leticia, 2021). Michael Zimmerman, who is a

partner at global consulting firm Kearney, stated in the interview with Market Watch that the

monthly cost of leasing a ship is between one million and two million dollars without the

operating costs (Nesbit, 2021). Costco decided that the investment is worth it and has charted
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three ships for the next year that can each carry between 800 and 1000 containers (Genovese,

2021). Other major retailers also charted ships to eliminate the delays of merchandise for the

holidays (Leticia, 2021). With recent reports indicating that there are 100 ships sitting outside the

port in Los Angeles, (Hernandez, 2021) the cost is worth it. Why? Because there are multiple

advantages for the companies who rent their own ships. 

Costco and other major retailers are paying a considerable amount of money to lease

ships, and they gain many advantages such as controlling the route of the ship and avoiding

delays, moving more merchandise at the same time and standing up to the increasing prices of

third party shipping companies. According to the recent press release from the Target corporate

website, “We also chartered our own container ship to regularly bring Target merchandise from

overseas ports to the U.S. As co-managers of the ship, we can avoid delays from additional stops

and steer clear of particularly backed-up ports” (Target, 2021). One of the reasons why major

companies should lease their own ship is to become “co-managers” of the ship. What does that

mean? It means that companies are in charge of the ship. In this example, every container

belongs to Target, and Target manages the route of the ship. As stated on the Target website, the

ship that Target is leasing does not have to make “additional stops.” The ship will simply make

one stop and unload all of the merchandise at the same time and go back to get more. The result

is that the company avoids delays. The second advantage for the companies to lease ships is to

secure space and deliveries for the next year or more (depending on the length of the contract). 

For example, Costco is leasing three ships for the next year which will make ten deliveries

during that time. This means that the company is guaranteeing itself space to move merchandise

at least for the next twelve months (Genovese, 2021). The third, and the most important,

advantage is that major companies are standing up to the increasing costs of shipping through
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cargo companies. As stated earlier, the price of shipping one container has doubled since July to

$20,586, and that price is 400% higher than January’s cost of about $5000 (Lynch, 2021).

Leasing a ship is expensive, but the price is locked for the next year. In the recent Costco

Wholesale earnings call, Richard Galanti, who is a Chief Financial Officer for Costco, mentioned

that the company is avoiding paying six times the price of shipping through third party

companies because it leased three ships (Hanbury, 2021).

Leasing ships will ensure the delivery of holiday goods on time, but it will not resolve the

national labor shortage or traffic at seaports. During my interview with Terry Robertson (Store

Manager at Johnston and Murphy), I asked Mr. Robertson if more merchandise will increase

sales in his store. Mr. Robenston stated, “At the moment more merchandise would be nice. Half

of the product displayed in the catalog is on backorder. However, due to the shortage of staff, we

are struggling to keep the store open for more than eight hours each day. At times, there is only

one person working, and by default that person has to take care of five to six customers at a time,

which often leads customers to simply leave the store. We need people, not merchandise.” While

Costco and other major retailers can ensure the delivery of goods from overseas, they are still

facing issues brought by the national labor shortage. There is a national truck driver shortage

(Cavitt, 2021) which means that the containers full of merchandise will be waiting to be

delivered to the stores. However, trucking companies have been solving employee shortage

issues. Some companies are offering up to a fifteen-thousand-dollar sign bonus to licensed

drivers (Reuter, 2021). Unfortunately, there is no simple solution to the congestion at seaports.

According to United States President Joe Biden, the Los Angeles seaport will move to 24/7

service (Tappe, 2021). The desire of the government to help with the supply and demand chain
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looks promising, and only time will tell if the 24/7 operation of the port will relieve cargo ship

bottlenecks. 

(Tama, M 2021 “In an aerial view, container ships (Top L) are anchored by the ports of Long

Beach and Los Angeles as they wait to offload on September 20, 2021, near Los Angeles,

California. Getty Images, https://www.cnbc.com/2021/10/13/supply-chain-biden-backs-running-

west-coast-ports-24-7-to-ease-bottlenecks.html).

If shipping issues are not resolved before the holiday season, many Americans will have

difficulty finding Christmas gifts. If more merchandise is not delivered, many stores will not be

restocked in time for the holidays. Even major news outlets have been encouraging Americans to

start holiday shopping early. For example, CNBC posted an article in September titled, “Here’s

What Could Mess Up Your Holiday Shopping This Year — And Why You Should Start Early”

(Cavitt, 2021). Clearly, major retailers and the American media have been warning the

consumers about possible inventory shortages. While consumers may expect that stores will
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carry holiday merchandise, major companies must continue to navigate the pandemic-affected

supply and demand chain and hope that leasing private ships will save this holiday season. 
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References 

Cavitt, M. (2021, September 13). Here's what could mess up your holiday shopping this year -

and why you should start early. CNBC. Retrieved October 28, 2021, from

https://www.cnbc.com/2021/09/13/starting-your-holiday-shopping-early-may-help-you-

save-money-avoid-headaches.html.

Cavitt, M. (2021, October 25). Commercial truck driver shortage exacerbated by pandemic

significantly affecting supply chain. The Oakland Press. Retrieved October 28, 2021,

from https://www.theoaklandpress.com/2021/10/25/commercial-truck-driver-shortage-

exacerbated-by-pandemic-significantly-affecting-supply-chain/.

Costco. (2021, August 28). Covid updates | Costco. Costco Covid Updates. Retrieved October

10, 2021, from https://www.costco.com/covid-updates.html.

Doniger, A. (2021, October 16). Do you need to start holiday shopping even earlier this year?

here's what retail experts say. CNBC. Retrieved October 28, 2021, from

https://www.cnbc.com/2021/10/16/start-holiday-shopping-even-earlier-this-year-heres-

what-experts-say.html.

Genovese, D. (2021, September 28). Costco chartering ships to transport goods amid global

supply-chain troubles. Fox Business. Retrieved October 28, 2021, from

https://www.foxbusiness.com/lifestyle/costco-global-supply-chain-delays.

Hanbury, M. (2021, September 27). Costco is renting 3 container ships and 'several thousand

containers' to shield itself from supply-chain delays and rising costs. Yahoo! News.

Retrieved October 28, 2021, from https://news.yahoo.com/costco-renting-3-container-

ships-100115623.html.
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Hernandez, J. (2021, October 19). Record number of container ships waiting to enter ports of

Los Angeles, Long Beach. ABC7 Los Angeles. Retrieved October 28, 2021, from

https://abc7.com/port-backlog-of-los-angeles-long-beach-container-ships/11142891/.

Leticia , M. (2021, August 20). Big retailers book pricey private cargo ships in Holiday

scramble. NBCNews.com. Retrieved October 28, 2021, from

https://www.nbcnews.com/business/consumer/big-retailers-book-pricey-private-cargo-

ships-holiday-scramble-n1277321.

Lynch, D. J. (2021, October 2). Inside America's Broken Supply Chain. The Washington Post.

Retrieved October 28, 2021, from

https://www.washingtonpost.com/business/interactive/2021/supply-chain-issues/.

Nesbit, J. (2021, October 8). Walmart, Target and more charter private ships to combat great

depression-level supply chain issues. GOBankingRates. Retrieved October 28, 2021,

from https://www.gobankingrates.com/money/economy/walmart-target-more-charter-

private-cargo-ships-combat-great-depression-level-supply-chain-issues/.

Peek behind the scenes at how target's prepping our supply chain to deliver holiday joy all

season long. Target Corporate. (2021, September 1). Retrieved October 28, 2021, from

https://corporate.target.com/article/2021/09/supply-chain-prep.

Reuter, D. (2021, August 24). A trucking company is offering signing bonuses of at least

$15,000 to attract licensed drivers. Business Insider. Retrieved October 28, 2021, from

https://www.businessinsider.com/trucking-company-driver-signing-bonus-15k-cdl-

cowan-systems-jobs-2021-8.
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Tappe, A. (2021, October 13). Biden discusses supply chain crisis with US ports and carriers.

CNN. Retrieved October 28, 2021, from

https://www.cnn.com/2021/10/13/economy/supply-chains-biden-ports/index.html.

Wilkie, C. (2021, October 13). White House plan aims to help Key West Coast ports stay open

24/7 to ease supply chain bottlenecks. CNBC. Retrieved October 31, 2021, from

https://www.cnbc.com/2021/10/13/supply-chain-biden-backs-running-west-coast-ports-

24-7-to-ease-bottlenecks.html.
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