Ports dispute and Red Sea attacks hitting furniture supply chain

Industrial disputes at Australian ports and terrorism in the Red Sea trade route have hurt supply chains for furniture, says the owner of Freedom and Fantastic Furniture.

The owner of one of the nation’s largest stables of furniture stores has warned that industrial action at Australia’s ports and terrorism activity along the vital Red Sea channel are constraining supplies, causing shortages and ratcheting up freight costs.

Greenlit Brands, the owner of Fantastic Furniture and Freedom, has also reported lower-than-expected sales through December and January, with cost-of-living pressures and a tighter economy pushing many consumers to search for value and promotions when making a purchasing decision.

Significantly, Greenlit has become one of the first major retailers to admit to disruptions caused by the twin challenges of industrial actions by unions and terrorist attacks in the Red Sea, raising the prospect of other retailers facing similar shortages as well as cost blowouts that ultimately could be passed on to consumers to feed into inflationary pressures.

“Compared to prior years the business has not faced the same level of supply-chain disruption; however, (the DP World ports dispute has caused) delays and some shortages in stock availability,” a spokesman for Greenlit Brands told The Australian.

“Ocean freight rates are also seeing some increases due to the Red Sea conflict.”

The maritime industrial action has flared up over pay and rostering, and as many as 50,000 containers are reported to have been stranded, and DP World, the nation’s second-biggest port container operator has estimated the delays have cost the Australian economy $84m per day since the industrial brawl began in October.

On Friday that industrial dispute was settled when the Maritime Union of Australia reached an agreement with DP World that had been strangling the smooth flow of imports and exports through Australian ports.

However, that peace deal came at a price with wharfies to get a 25 per cent pay rise over four years and a $2000 sign-on bonus – and that ultimately is expected to flow through to higher charges for containers and ports services.

Meanwhile, terrorist attacks in the Red Sea linked to the war in the Middle East have forced many shipping lines to seek alternate routes – sailing around the Cape of Good Hope in southern Africa – which add at least 10 days and more than 15 per cent to shipping costs.

Greenlit’s Fantastic Furniture and Freedom retail banners operate 146 stores in Australia and New Zealand, making the group one of the country’s largest furniture retailers.

These supply-chain shocks experienced through 2023 have impacted Greenlit Brands’ performance.

The industrial dispute between ports operator DP World and the MUA was settled last week. Picture: Nikki Short

Latest accounts show Greenlit Brands posted sales of $1.08bn for the 12 months to October 1, up 0.4 per cent with its net losses rising fourfold to $9m, driven by higher raw material input costs and increased supply-chain expenses.

The larger loss in 2023 was also driven by only a partial contribution to the accounts from its bedding division – made up of retail chain Snooze, bedding manufacturer Futuresleep and furniture importer and wholesaler G&G – which was sold to rich-lister Larry Kestelman, owner of the National Basketball League, in April.

Greenlit Brands, which is the local offshoot of Steinhoff International, has long been rumoured to be seeking a sharemarket float on the ASX.

A spokesman for Greenlit Brands signalled there were no plans to take the company public as yet: “Whilst Greenlit Brands remains committed to the shareholders direction and ultimately further divestments, there is no specific deadline for transacting the remaining businesses.

“Greenlit Brands continues to focus on investing in its businesses, operations and people whilst continuing to assess and evaluate future potential strategic opportunities that are in the best interests of our shareholders.”

Greenlit Brands has shed a number of its businesses since the scandal erupted around its parent company, including the bedding business sale to Mr Kestelman, selling Plush-Think Sofas to rival furniture chain Nick Scali for $103m in 2021 and disposing of discount department stores Harris Scarfe and Best & Less.

According to its latest accounts, Greenlit Brands’ operating cashflow was $99.7m, representing 178 per cent growth on the prior year and reflecting strong underlying performance of the retail businesses and normalising levels of working capital.

A Greenlit spokesman said trading through to January had remained robust across Freedom and Fantastic Furniture, but sales around Christmas and the new year had been below forecast.

“There have been some seasonal changes in consumer purchasing behaviour, with stronger sales through the key November promotional periods (Black Friday, Cyber Monday) offsetting slightly lower-than-expected sales through December and January,” he said.

“We expect consumer purchasing behaviour to continue to be driven by promotional activity and key promotional periods as we trade through the second half of fiscal 2024.

“We did not expect any change to the Australian interest rate environment will have a material effect on consumer purchasing intent for the balance of fiscal 2024.”

The business continues to retain access to undrawn external debt facilities in Australia, has no outstanding internal or external debt and its net cash of $131m represents an 80 per cent year-on-year increase as at October, the Greenlit Brands accounts show.

It continued to deliver strong returns for its shareholder, Steinhoff, with a dividend of $33.3m paid in October.

Originally published as Ports dispute and Red Sea attacks hitting furniture supply chain