Increasing container spot rates hitting the market (again), warns Halfords

Halfords is among the major market players highlighting significant increases in sea freight rates and their impact on the market, as part of its latest financials (the 52 weeks leading to 29 March 2024).

In its outlook, Halfords said spot rates had more than doubled since the start of its financial year. Added that despite the fact it has secured rates well below the current average, Halfords now forecasts freight costs to be £4-7 million higher than anticipated at the start of the year.

That news will be judged unwelcome with consumers already struggling to justify big ticket items – also noted by Halfords in its latest results. It may also give many industries a sense of déjà vu, with container prices and availability issues sending prices rocketing in the aftermath of Covid-19 pandemic. Then, it led to discussion over the wisdom of relying on long distance supply chains – as many industries do in Western Europe and beyond – and provided a boost for near-shoring and on-shoring manufacturing. Though, sage minds will point out that even bike manufacturers in the UK, for example, have to rely on some componentry from overseas.

The news may also renew the ‘are bikes too expensive’ discussion, which some in the industry have been wrestling with (and eBike anti-dumping duties were on the table prior to the announcements of the General Election). And also doubtless highlight the importance of alternative means to get hold of bikes, eg via cycle to work, itself being hotly debated in recent times.

Consolidation and market share

Halfords made “good progress” and “share gains” in all of its core markets, confounding its expectations, with group revenue up 7.9% and 5% on a like-for-like basis.

Halfords said market volumes in cycling (and consumer tyres) declined year-on-year, worse than industry expectations.

Cycle market consolidation led to much higher levels of promo activities and sales, increasing significant short-term pressure on gross margin. It added that consumers had cut their spend on big-ticket, discretionary products (eg bikes and touring) “even further” and it said it now expects volumes to decline in the cycling and consumer tyres markets in FY25.

Halfords which also blamed inflation on the 10% increase in the national minimum wage.

Halfords said: “Whilst these headwinds have inevitably impacted the Group’s financial performance in the short-term, our strong and growing market positions provide us with significant opportunities for profitable growth. For example, the consolidation of the Cycling Market had a severe impact on Halfords in FY24, but as the clear market leader we expect to emerge in an even stronger position once market conditions normalise…

“We do not expect these headwinds to persist in the long term. Consumer price inflation is easing and our core markets are expected to improve in the mid-term. We remain confident that the financial targets announced at the April 2023 CMD are achievable assuming markets ultimately recover as forecast, albeit this will take longer than we envisaged last year.

“We remain very confident in the Group’s strategy, as we build a stronger and more resilient platform for the future and continue to take market share.”