3 months before Christmas, companies are already bracing for stock…

Retailers like to say that Black Friday is so named because the holiday buying frenzy that comes the day after Thanksgiving is when they move into the black—or begin to turn a profit on the year. But in the upside-down world of the COVID-19 pandemic, it may be the day when many of them sink into red ink.

Fast-fashion brands H&M and Boohoo both warned Thursday that their profits would suffer because of supply chain costs and bottlenecks, highlighting problems faced by the sector as supply chain issues drive up expenses and leave companies short of products.

After months of moving record-breaking imports into congested ports in the U.S. And Europe, shippers have little free capacity to add holiday orders into a supply chain clogged with orders for the great post-lockdown reopening. Faced with an overwhelmed supply chain, companies that have yet to stock up for the holiday season are going to find it hard—and expensive—to do so now, a new report by S&P Global Market Intelligence finds.

In a normal year, October is the busiest month for shipments into the U.S. As companies stock up ahead of Black Friday. But this year, as the world economy jolts from a dead stop to a full sprint as it reopens, the usual way of doing things is falling short.

“Companies that didn’t plan for, or adapt to this kind of new super-long lead time supply chain environment might be left with goods on boats,” said report author Eric Oak, supply chain analyst at S&P Global Research.

The period of constriction began in March 2021, which saw the highest number of imports into the U.S. Ever recorded. Since then, imports have stayed around the same level, suggesting the world’s supply chain is close to its maximum capacity—according to Oak, U.S. Ports at Long Beach and L.A. Are already operating at full capacity—so even if companies wanted to get goods in before the holiday season, little could be done to increase supply. “Congestion is definitely ramping up,” Oak said.

And that bottleneck is revealing itself in company warehouses, and soon on store shelves.

“We can’t fulfill the demand in some product types. Both due to production from suppliers and also transport and congestion at ports,” H&M CEO Helena Helmersson told the Financial Times.

H&M and Boohoo are far from the only companies looking for supply chain mercy, however. Toy companies are scrambling to find shipping capacity to supply shoppers’ demand. And the International Chamber of Shipping and other transport groups wrote in a letter to heads of state that global supply chains were at risk of collapse under current working conditions.

Holiday markups

With demand outpacing supply, carriers are reaping the benefits. Freight rates are at record highs, with basic routes from China to the U.S. West Coast up 83% this year. Imports to Europe are increasing even faster, rising 134% since December. And the rates are continuing to rise: Shipping costs out of China have increased 10.4% since the end of July, and were up an additional 2.5% during the week ended Sept. 24.

The report finds that carriers that can ship more during October, rather than balancing supply across the year, will be the real winners of the supply chain disruption. Shipping giant Maersk told the FT that the company is expecting a record-breaking profit this quarter as supply chain disruptions get worse.

This in turn will result in inflation. Mentions of inflation on company earnings and guidance calls increased by 74% year over year in Q3, in data tracked by CapitalQ—and the discussion of inflation often breeds inflation.

“Companies are talking about inflation and anticipating inflation and unfortunately that’s almost a self-fulfilling cycle where if everybody thinks inflation will happen, it’s likely to happen,” said S&P analyst Oak, who noted rising inflation is not a question of “when” but “how bad.”

Not all products will see rising prices, however. Looking at 3,000 companies at the subindustry level, S&P found that imports of footwear increased by 278% year on year in July and August, making them the best stocked—and therefore best prepared—for holiday congestion. General merchandise companies, like Walmart and Costco, were at the other end of the spectrum, with imports falling in the same time frame by almost 80%.

There is some good news for retailers, however. As Christmas comes and goes, inflation is expected to do the same. Federal Reserve Chair Jerome Powell and his counterparts at the European Central Bank, Bank of Japan, and Bank of England have all voiced assurances that supply chain disruptions that push up inflation would only be temporary. And according to Oak, freight carriers have noted disruptions should ease by China’s Lunar New Year, on Feb. 1.

That would be after Christmas.