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From Home Furnishing Business

Publisher's Letter : Change

By Bob George

This is not something many of us want to do. However, this is an inevitable condition in today’s fast-paced environment. And the Internet is a big part of that environment. We cannot slow its growth or lessen its influence even if we want to. It is hard to contemplate the fact that today 17.5 percent of all furniture is sold via the Internet. What happened to the age-old maxims of “They need to sit on it or see the quality or appreciate the finish”?

Before you dismiss these statistics as not believable, understand the fact that only one-third of this 17.5 percent is sold by direct e-tailers—the balance is sold by brick-and-mortar retailers who recognize that consumers want to shop online. There was a time when no one would have envisioned the owner of a fast food restaurant would cut a hole in the wall of the restaurant and sell food through it. However, today one expects this type of restaurant to have a drive-thru window.

This is not to compare furniture to fast food. Instead, it is to help us emphasize the fact that the retailer must conform to how the consumer wants to shop. In the research focusing on this subject (see “Hot Wire” on page 16), the Ease of Shopping was as important to the consumer as Price.

We also cannot ignore the consumer’s perception of Selection when shopping on the Internet (sharing first place with Price as the most important reason for consumers to shop the Internet). To understand this perception, observe the in-store interaction between the sales associate and the consumer. Notice your sales person as he or she goes through a “needs analysis” with a customer. Then, compare that with the efficiency of the Sort capabilities on the Internet. You can begin to understand why more than 50 percent of customers leave the store believing “I couldn’t find what I wanted.”

The Internet is here to stay. Its scope spans such a wide-ranging territory that it boggles the mind. Therefore, it is important for the furniture retailer to recognize the inevitability of change, be willing to make the leap, and embrace the ‘Net. 
The successful retailer must anticipate change, not wait until competitors have seized the advantage. This is true of major strategic shifts, such as the Internet. However, it is equally true of certain ongoing changes as well. Among the more important areas on which to focus are the strengthening or weakening of certain product categories, the effectiveness of advertising and the measurement of that effectiveness, and a careful consideration of price point migration. To anticipate change requires a measurement. Without a sundial, a watch, or a digital phone, you would not know what time it is. As pointed out in this issue’s section on motion upholstery, there has been significant growth in the category. However, there are still retailers with limited assortments of motion who wonder why their upholstery sales are down. 

From outside the industry there is a fear that furniture retailing is destined to move in the direction of apparel and footwear retailing with the concentration of the volume being in mass merchants or very focused specialty stores. The results are declining dollar volume with stable unit volume. We don’t believe this is true. However, retailers that meet this challenge need to embrace change and adopt the current business model to meet consumers’ demands. Or they will have to create a new retail model that satisfies a need they have yet to recognize.

From the Editor : Wide World of Shopping

By Sheila Long O’Mara

Take a tour down nostalgia lane with me for just a few minutes. For those of you over the age of 40, think back to shopping when you were a young teen. Not just for home furnishings, mind you, shopping for nearly anything—clothes, cars, sunglasses, books, toys, wine—and everything.

For me, the lone girl in a family of three kids, shopping for the back-to-school wardrobe was the best. First of all, neither of the boys gave a hoot about clothes—t-shirts, jeans and sneaks got them through. I, on the otherhand, did care, and it just so happened that my mom did, too. Secondly, a day spent shopping was a day spent building a mom-daughter bond.

Back in the day, in small town <st1:place w:st="on">North Carolina, store options were limited. We had the home grown department store of Belk, where you could spend nearly a day in the juniors’ department. There was an Ivey’s. Remember that name? The Charlotte-based department store was acquired by Little Rock-based Dillard’s in the 1990s.

For jeans and corduroy Levi’s in all the colors of the rainbow, the Gap was the place to go. I, a lanky teen with a small frame and long legs, appreciated the abundance of waist-length combinations available in those cubbies stacked floor to ceiling with denim and cords. Shopping was an all-day adventure that always included at least one meal, and sometimes three, out. It was THE scavenger hunt of all scavenger hunts.

At the end of the day, the prizes were all folded and tucked neatly in the bags, carried home by an exhausted yet happy girl. Fast forward to back-to-school—or any other—shopping today. The experience has changed exponentially. I still find myself living with boys who don’t care to shop, but the choices in store fronts has exploded over the years. The department stores don’t carry quite the same draw, whereas specialty stores have developed quite the cult-like following.

Add the World Wide Web—the Internet—to the number of brick and mortar stores and the total of places to shop has become nearly infinite. E-commerce is booming, and the Internet has become a shopper’s first stop prior to buying most things, including furniture. Oh, she may not buy, but she’s certainly looking, and IF she finds the perfect match to what she’s hunting, then look out. She’s just as likely to put that bed or chest or dining table in her virtual shopping cart, pull out her credit card and own both the product and the shopping experience.

E-commerce no longer only revolves around books, shoes and hard-to-find wines. Like it or not, the phenomenon is here to stay. Laptops, desktops, tablets, smartphones—consumers are using all devices to shop with AND buy from.
Is the thought scary? Of course it is, if you’ve not figured out how to add that shopping cart feature to your Web site and the back end logistics needed to make it work. Is e-commerce the end all be all for retailing—furniture or otherwise? No, but it is a very real, very tangible part of the business.

In this issue, we explore e-commerce and share insight from retailers who are making it work and experts who understand the subject and how to help home furnishings retailers create a dynamic, online experience.
Here’s to figuring out the future of retailing on the Internet while we old folks reminisce about the good ol’ days of running from store to store in search of the perfect fall wardrobe.
Enjoy! 

On Bedding : Beds Take on Technology

Bedding Vendors in Las Vegas Stretch Technologies to drive home comfort.

By Sheila Long O’Mara

Bedding suppliers this summer proved that the Las Vegas Market is THE market for bedding by pulling out creative advertising programs, a broad selection of new product and technologies to encourage sells. Adjustable beds, gel-infused sleep surfaces and technology topped the highlights for bedding producers. Here’s a roundup of some of the things we saw.

Sealy
Sealy married the comfort of latex with gel in its Optimum by Sealy Posturepedic. The line features the company’s OptiCool to offer consumers a more responsive feel in their bed. The Optimum collection features four beds all infused with Outlast technology, which is used in high performance outdoor gear, and is shown to be effective in removing excess heat.
The Optimum gel latex line starts at $1,699 retail.

Kingsdown

A more personalized sleep experience is the goal Kingsdown has set for its Sleep Smart sleep system. The company has pumped up the technology behind the Sleep Smart collection so that the bed will read a sleeper’s body and create an individualized sleep experience. The beds now offer adjustability, integrated Wi-Fi and Bluetooth technology. The technology allows the bed to adjust to sleep patterns and movements and offers an update on how soundly a night’s sleep was.
Pricing starts at $6,999 for a queen.

Pure LatexBliss
The Prestige collection from Pure LatexBliss is an all-latex mattress that recreates the feel of beds crafted of horse hair, cotton and wool. Quilting Talalay Latex is used in the top panel and the latex inside the beds features graphite-infused latex to help regulate temperature.
Four models round out the collection with two styles retailing at $4,999 and two styles priced at $5,999 in queen.

Tempur-Pedic
Tempur-Pedic put its focus on giving consumers the power to  create a personalized sleep environment. The top of the company’s line, Tempur-Choice allows each partner to set their ideal comfort level. The beds feature two hand-held remotes, each programmed to one side of the adjustable bed, to achieve the perfect in surfaces. Each remote has more than 120 comfort settings.Tempur-Choice offers two models; one priced at $3,499 and the other at $3,999 for a queen.

Simmons
Simmons went full bear after the coveted Millennial market with its introduction of Curv, a three-model, Simmons branded memory foam line at a more affordable cost. Priced at under $999, each mattress features the company’s specially designed memory foam shaped in a horizontal curve pattern designed for comfort and support.

Therapedic International
Pairing two bedding trends, Therapedic’s Buoyancy collection features latex and gel. The Buoyancy collection features Therapedic’s hourglass-design made with a gel layer fused on top of natural latex to offer cooling and support for key areas of the body—shoulders, hips and lumbar.The collection features four styles and is priced to retail from $1,499 to $2,999 in queen.


Englander
Geared toward consumers who are athletically built or plus-sized, Englander’s The Big Sleep Solution includes three new models and two comfort choices. Ranging in price from $1,599 to $1,999 for queen, Posture Support Plus models use the company’s Dual Coil construction. Available in foam-encased pillow top and tight top styles, the new beds incorporate combinations of extra firm, highly resilient poly foam, natural latex and gel memory foam. HFB

 

Know Thyself

A merchandise scheme that appeals across price points and big selection are keys to the self-image Gorman’s Furniture Projects. 

By Powell Slaughter

A commitment to offering a huge range of styles at upper-middle to high-end price points coupled with a “flat” management approach that inspires all employees to make offering solutions to customers their top focus have Gorman’s Furniture thriving in a highly competitive region for furniture retailing.

Based in Novi, Mich., Gorman’s serves the suburban Detroit area and, since March 2011, Grand Rapids. It’s an area chock-full of familiar, powerful retail brands. Those include Art Van (which has revived the high-end Scott Shuptrine name), Gardner White, Hillside Furniture and the 800-pound gorilla, Ikea. Not only that, research from Home Furnishings Business’ parent company Furniturecore/Impact Consulting shows the markets Gorman’s serves—Warren-Troy-Farmington Hills, and Grand Rapids—vary in terms of age and income, which might create problems for some furniture retailing models.

FROM “GOOD” TO “EXCEPTIONAL”

“The way we’ve competed is to have a clear understanding of who we are and project that to the marketplace,” said Tom Lias, president and CEO. And what Gorman’s projects is a huge selection at a range of prices. “As you enter one of our stores, you’ll see about half the store is set up into lifestyles, and the other half is divided into (category specific) shops,” he said. “Around half our customers coming in are product-specific. They’re looking to solve a problem, generally with a particular product category. Those customers are easy to talk to.” For the other half that says, ‘We’re just looking, we want to browse,’ Gorman’s sales staff, which consists mostly of interior designers, can steer those customers to defined lifestyles that are shown in vignettes. Gorman’s vignettes blend vendors, and they blend price points.

“Our merchandising platform is good, better, best and exceptional,” Lias said. “We treat merchandising in a horizontal fashion, like a flat management style. In flat management, everyone is equal, and everyone is important, they just have different job descriptions. That’s the way we run the business. The partners are out on the floors.

“The total (presentation) is what services the customer. Our ‘good’ presentation is branded under the ‘Intro’ brand—we’ve had that copyrighted for 17 years. You’ll have a $799, $899, $999 sofa. All the product categories are represented in Intro. It helps our competitive position, and makes us approachable. We know people have different needs for different times in their life, and for different parts of their house.” The contemporary furniture store in Southfield, Mich., is an exception to the look of Gorman’s merchandising scheme at the other stores, but the good, better, best and exceptional platform remains the same.

“We can have a $799 sofa and a $7,999 sofa from Baker in the same store,” Lias noted. “They’re there for a different customer, or for the same customer for a different part of the house. They might want that Baker piece for the living room, but something less expensive for where the kids hang out.”

A DESTINATION

If Gorman’s internal merchandising is good, better, best and exceptional, its external merchandising is led by ‘100 Brands.’

“About six or seven years ago, because we want to be a destination for the best selection, we created the platform of ‘100 Brands,’” said Lias, who joined Gorman’s as a partner in 1984 after long experience in dedicated, single-brand stores that included Ethan Allen, La-Z-Boy and Drexel Heritage. “We believe we have the broadest range in Michigan, maybe the Midwest in prices and styles, because most traditional stores don’t do contemporary. We have the 100 best brands in furniture all in one place, all in one time.”

Television is Gorman’s number one vehicle for getting that message out to the marketplace, along with some radio and print in supporting roles.

“In addressing those 100 brands, we say ‘We are Michigan’s style leader,’” Lias said. “When you define yourself that way, you can have the moderate prices and the high end in the same store, because it’s all about style. That is our market position.” The style and selection range fit well with Gorman’s emphasis on design-oriented sales. Of its 60 sales staff, Gorman’s has around 50 with design degrees, background and experience. Their services are complimentary.

“Working with a designer is a by-product of coming to Gorman’s,” Lias said. “All of those 50-plus people will make house calls, create plans for customers. That could involve just answering a couple of questions about color to designing a complete floor plan for the home.”

FROM FREIGHT TO FINE FURNITURE

Gorman’s dates back to 1940, when Founder Ben Gorman began selling damaged railroad freight from an outlet in Southfield. Soon, Gorman’s started receiving damaged furniture, which it would repair for sale. As word spread, furniture retailing was a natural next step. In 1965 Ben Gorman sold the store in Southfield to Bernie Moray who continues the operations with partners Tom Lias, Jeff Roberts and John Moray. That led to opening new locations, and a new direction.

“After Bernie acquired the company, he wanted to take it more upscale,” Lias noted. Gorman’s opened a store a couple of hours from its Detroitarea base in Grand Rapids in March 2011.

“We actually returned to the same store we were in 15 years previously,” Lias said. “We had Drexel Heritage store there for 15 years. It was bought out from under us while we were negotiating the lease.

“Ultimately they did us a favor, because we moved back to Detroit, where we opened new locations and moved existing stores. We really built up our business in Detroit, so it ended up a blessing in disguise.”

“FLAT” MANAGEMENT

Lias mentioned earlier that Gorman’s runs on a “flat” management model. The owners are on the floors, and they solicit input from all employees, which has generated powerful esprit de corps. And Gorman’s worked hard during the recession to keep those people in their jobs.

“The adjustments we made in 2008 were almost instantaneous,” Lias said. “By the end of October we had restructured the company. We took everyone to a four-day work week, and we were able to retain almost all our staff for the duration of the downturn. By moving early we didn’t have to be as drastic in our cuts, no closing of stores, laying off staff.”

It’s no surprise, therefore, that Gorman’s has been rated one of Michigan’s “Best Places to Work” for three years in a row by the Detroit Free Press.

“We have almost no turnover, and that includes administration and warehousing,” Lias said. “We keep everybody involved in the business —we communicate the goals, the standards, across the board.

“Gorman’s has one policy, and that’s ‘Must Be Right’ (see accompanying box). Everything else is a standard or procedure. And ‘Must Be Right’ isn’t a phrase for us, it’s a way of life that creates a very positive environment to work in.” It’s all part of flat management’s egalitarian approach, and it’s helped Gorman’s attract top-notch talent.

“Everyone’s treated with respect and involvement. It goes back to that flat management,” Lias said. We have no trainees; everyone here is a career furniture person. “When furniture stores were closing right and left, we went after their top one, two or three people. Almost everyone at Gorman’s was the best at their job someplace else.

You have to have a very strong image, based on the needs of our designers, because that’s what they need to solve customers’ problems. If you solve problems, you’ll deliver a whole lot of furniture.” HFB

 

Key Management

Four co-owners include Tom Lias, president and COO; Bernie Moray, senior partner; Jeff Roberts, executive vice president; and John Moray, vice president of operations and information technology.

Key Vendors

American Leather, Bernhardt, Century, Better Homes & Gardens, Drexel Heritage, Hendredon, Hancock & Moore, Hickory Chair, Hickory White, Hooker, Lazar, Lexington Home Brands, Natuzzi, Rowe, Serta, Sherrill, Stanley, Stickley, Stressless by Ekornes, W. Schillig.

 

One Policy

Gorman’s Furniture has just one policy, and it’s “Must Be Right.” It reads: “Before you arrive, we assure you that Gorman’s is prepared to make presentations that meet your expectations. Whether your interests lie in classical motifs and traditional ambience, or in the latest contemporary trends, our objective is to help you visualize all the choices you have to achieve your unique design goals.

While you work with us, we assure you that the professional staff members who assist you are experienced, informed and – above all – sensitive to your needs: that you and your specific requirements come first and foremost. “After your purchase, we assure you that everything meets our standards for quality, specifications, and service. If there is a problem, Gorman’s will correct it.” “In short, we assure you that everything must be right, or we will make it right.” “That is more than our promise. It is our policy.”

"We can have a $799 sofa and a $7,999 sofa from Baker in the same store. They’re there for a different customer, or for the same customer for a different part of the house".

-- Tom Lias

Gorman’s Furniture

Market Profile

Warren-Troy-Farmington Hills, Mich., MSA (includes Novi, Mich., Gorman’s Hometown)

2013 1st Quarter Retail Sales: $200.8 million

Change in Sales: -3.42% from 1st Quarter 2012

2012 Retail Sales: $837.1 million

Other Retail Players: Art Van Furniture, Hillside Furniture, Gardner-White, Restoration Hardware, Crate & Barrel, Pottery Barn, Arhaus Furniture, American Freight, Value City Furniture, Ikea.

Gorman’s Furniture at a Glance

Founded: 1940 as a retailer of damaged freight

Homebase: Novi, Mich.

Store Count: 5

Other Real Estate: 2 warehouses totaling 66,000 square feet

Employees: 150

Annual Revenue: $30-$35 million

Web site: Gormans.com

Aiming at America

After Losing Luster During the Recession, the U.S. Market Is a Prime Export Target Again.

A recovering U.S. economy is good news for furniture retailers in ways beyond the obvious reasons.

Not only is it good for business, it makes them a lot more attractive as customers in the global marketplace for home furnishings.

With furniture stores closing left and right during and in the wake of the recession, and consumers that worried more about keeping their homes and jobs hardly thinking of buying furniture, manufacturers in source countries looked to spread their eggs beyond the proverbial U.S. basket.

Growing markets such as China got more attention, including furniture makers there that started re-working their goods for appeal in the domestic market.
The tide is swinging back.

“Right now the United States is a growing economy, and Europe is a mess—the U.S. is getting a lot more global attention than it was 18 months ago,” said industry analyst Jerry Epperson, managing director of Mann Armistead & Epperson in Richmond, Va. “China’s economy grew again last year, but growth slowed faster than what they had planned, so it’s my understudying there are some export initiatives being reinstated.”
Epperson’s of the mind that the Chinese weren’t necessarily better manufacturers than U.S. companies, they received a lot of government incentives to. A couple of years ago, those come-ons were drying up for furniture makers as the Chinese government shifted its emphasis to “cleaner” industries.
“I’m hearing those incentives are coming back,” Epperson said. “Now, some of these manufacturers who said six months ago that we won’t be around, are saying this could be good business.”
It might be too late for some, though, as bedroom furniture production in particular has headed farther south to Vietnam and Indonesia. Labor rates continue to rise in China, and are creeping up in Vietnam as well, though the latter remains cost-competitive relative to its northern neighbor.
“We here some of the Chinese manufacturers aren’t making any money,” Epperson said. “There’s no question they’re still dominant, especially in upholstery. “Vietnam’s grown, but it’s not even a third of China. The capacity just doesn’t exist anywhere else. Indonesia’s still relatively small compared with China.”

With a 7 percent increase to $11.7 billion in household furniture exports to the U.S. market last year (out of total imports of $19.5 billion), per International Trade Commission numbers, China remains source country king. Second-place Vietnam grew at a much faster pace, 32.5 percent, but even at that rate it faces a lot of catching up, totaling just under $2 billion in shipments to the U.S. last year.

MOVING THE PIECES
Even if China re-instates export incentives, antidumping duties on many manufacturers will keep wood bedroom capacity that left in other countries, which are developing their chops in other wood categories as well. That, plus the fact that manufacturers have spent the past 10 years making investments elsewhere they don’t want to give up on.
“I don’t see it going back,” said Jack Hawn, president and CEO, Zenith Global Logistics, Conover, N.C. “When you’re talking about moving production, it’s very, very painful.
“What we’re seeing is most of the case goods product we get in our warehouses for our clients is coming out of Vietnam. We’re seeing a decent amount coming out of Indonesia. Most of that’s because of pricing.”
At City Furniture in Tamarac, Fla., Vietnam is on the rise.
“We have developed an important relationship with a great factory that should be a win-win for us both,” said Keith Koenig, president. “Quality and value and receptivity are all aligned for success.”
City is doing full collections at Kaiser, the Vietnam plant Koenig mentioned.
“We have an important, growing relationship with them,” he said.
Looking at the current Asian scene, Ray Johnson, senior vice president, global supply chain, Furniture Brands International, St.  Louis, also cited Vietnam as the place to watch, as well as Indonesia.
“These countries are growing because local materials and labor are more easily controlled, with less turnover,” he said. “Chinese sourcing has been a little difficult because of labor costs and availability. 
“Consumers are interested in mixed media pieces … ones that combine stone, metal and wood. China is still the number one producer of those types of products and simply is the best at that … but Vietnam and Indonesia are trying to catch up.”
While China still dominates, it’s starting to run out of category targets.
“It’s a question of at what point is low-hanging fruit taken,” Epperson noted. “They first started with occasional tables and dinettes that could be re-assembled over here. There was nothing with a drawer. Then they got into more case goods. Fabric upholstery didn’t really get started till 2002.
“There are certain products they can’t do that we can do over here. Those require a certain amount of customization. In every category they tried, they looked for the low-hanging fruit, those product increments where they could win on cost. At some point in time … the increments get harder to find.”
CLOSER TO HOME
Retailers got into the habit of looking to order smaller and get the product quicker during the recession, and that was good news for source countries closer by, as well as domestic producers.
“The return of a version of the ‘Rustico’ look could really help Mexico,” Koenig said. “A lot of the hand-made, one-of-a-kind, reclaimed wood tables and consoles and accent chests that are coming from India are selling well, and Mexico is starting to make some similar items that would be easier to flow.”
U.S. manufacturing is coming back, as well Koenig added.
“Just look at what Ron and Todd Wanek (at Ashley) are doing,” he said. “If our government would get off their back and out of their way, they would make even more furniture here.”
FBI’s Johnson said that Mexico’s cost structure is getting closer to China’s, which is building interest south of the border.
“Add in lead times like one week versus 45 to 60 days in China, and Mexico becomes even more appealing,” he said. “Our Mexican cut/sew operation (producing kits for Lane and Broyhill) is equal or better in costs to China and lead times are significantly less. We’ve seen that Ethan Allen and La-Z-Boy have expanded in Mexico in the last few years too.
“We believe we will see fabric mills start to grow in Latin America, too. There are lots of leather goods and tanneries in Mexico and Central and South America now. These facilities make these areas more appealing. We are even sourcing some occasional case goods out of Mexico now. You’ll see more companies get interested in Mexico in the future.”
Hawn said he’s noted customers bringing in LTL shipments from Mexico to Zenith’s distribution hubs in the past six months.
“It’s not a lot, maybe a load a month, but it wasn’t there last year,” he said. “Most of what we’re getting is in the occasional table category.”
U.S. manufacturers are increasingly competitive with their global counterparts, according to Johnson, if not from a cost, then at least from a service standpoint.
“Consumers want products as soon as they can get them—more people want things faster instead of waiting for months,” he said. “One of our brands, Hickory Chair, produces custom furniture domestically and we believe this brand is growing every year because of short lead times compared to international orders. And, we can control customization and quality much more tightly domestically.”
Hawn’s also seen an uptick in the domestic product Zenith handles.
“We’re seeing a big increase in soft goods, upholstery. It’s probably a double-digit increase into our hubs. We’re flat or down on case goods,” he said. “It’s hard to tell sometimes. We may get a domestic vendor who’s importing, too, and brings it to our hub. We don’t know for certain where it’s made unless we go out and look at the box.” HFB

Inset Story

Building a Bigger Ditch
Next year, the Panama Canal is set to complete work on a new channel designed to handle larger ships.
So called “Post-Panamax” ships—that is those too large to navigate the mid-Americas link between the Pacific and Atlantic oceans—will have far easier access to Gulf Coast and Atlantic ports after the new lane opens. Container ships in that category can handle up to 12,600 20-foot-equivalent units versus their smaller counterparts’ maximum of 4,400, according to a study, “Impact of the Panama Canal Expansion,” by Yossi Sheffi, director of the Massachusetts Institute of Technology’s Center for Transportation and Logistics; and PhD candidate Liliana Rivera.
City Furniture, Tamarac, Fla., receives some of its containers at the port of Miami. President Keith Koenig said the opening of the channel has the potential to “change our world.”
“Right now the (Post-)Panamax vessels are running between Asia and LA/Long Beach—certain ports in the U.S. are getting modified to accommodate their deeper draft, and that includes Miami, where we receive our international shipments,” he said. “The assumption is you can negotiate better rates if the ship’s carrying 4,000 containers versus 2,000.”
Koenig isn’t counting on anything just yet, but he is hopeful. So is Zenith Global Logistics CEO Jack Hawn, but he said the jury’s still out on whether the canal upgrade will affect cost-to-market for Asian goods.
“I’ve asked 100 people that question, people in the shipping business, and they don’t know yet,” Hawn said. They point out that with the new ships and more port charges, there will be some other costs. If you’re in Chicago, it probably won’t make too much difference.

“We have a South Florida hub, so we hope it’s cheaper, too, but right now we just don’t know.”

AN ACADEMIC TAKE
The MIT study found the fastest way for goods shipped from Shanghai to reach the U.S. East Coast is a 12- to 14-day ocean voyage, followed by seven to eight days by rail to New York—19 to 22 days.
The same cargo through the Panama Canal takes 25 to 26 days (fewer days, obviously, to Gulf Coast and South Atlantic Seaboard ports); and 27 to 28 days through the Suez Canal.
The study determined the Panama route cost $600 per container less than the West Coast/overland route.
Ports carrying on major projects will want to recoup those costs with fees, and the Panama Canal already charges per container, so retailers and their transportation partners will have to crunch their own numbers.
The MIT study also suggested that environmental issues and the potential for emission pricing “could favor the West Coast route” since carbon dioxide emissions for the West Coast-to-overland route are 2/3 of a trip through the Canal to New York.
In addition, the study noted that some West Coast ports have teamed with Burlington Northern Santa Fe and Union Pacific railroads in the U.S. West Coast Collaboration, which looks to guarantee competitive costs and service for shipping containers.