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The port of Houston this week. Photo by Bloomberg.
e-commerce economy

Online Merchants Squeezed by Surging Freight Costs, Slower Demand

Photo: The port of Houston this week. Photo by Bloomberg.

In August, Steven Borrelli, founder of online apparel brand Cuts Clothing, faced a tough decision. Demand for the hoodies and T-shirts that Cuts sells was skyrocketing. Yet shipping the merchandise into the U.S. from factories in China, Vietnam, the Philippines and Peru was no longer an option, as a shortage of trucks, containers and drivers had left ports backed up. So Borrelli decided to fly his merchandise into the U.S.

That lifted his cost of transporting goods tenfold, to $35,000 from $3,500. The Los Angeles, Calif.–based brand raised its retail prices by $2 an item to cover some of the extra expense, although the company is bearing the brunt of it. The result is that Cuts Clothings’ net profits have eroded by 3 to 4 percentage points, Borrelli said.

Cuts Clothing is among many online merchants that are stretching out their dollars to get their wares to the U.S. and eventually onto their customers’ doorsteps ahead of the all-important holiday season. Like Borrelli’s firm, other e-commerce brands are passing along at least part of their higher costs to their customers through price rises, a tactic that is expected to slow revenue growth. At the same time, firms are absorbing some of the higher costs, which is eroding their profits, as third-quarter reports from public companies such as Purple Innovation and The Honest Co. highlighted this week.

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