Instant Brands filed for chapter 11 bankruptcy protection this month with its balance sheet crumpled by the high costs of keeping its supply chain running even as demand for its products, standbys in many American kitchens, soared and then slumped in rapidly changing consumer markets. 

The company is seeking to restructure debt that includes tens of millions of dollars owed to manufacturers in China and some $320,000 to various unnamed logistics providers, according to papers filed in the U.S. Bankruptcy Court in Houston. It lists United Parcel Service, to which it owes $802,274, and Packaging Corp. of America, at $765,167, among its top 30 unsecured creditors. 

The company said in its filing that it faced “unprecedented liquidity challenges, which have accelerated dramatically over the past months driven by severely tightened credit terms with suppliers, rising interest rates, continued inflation and a shifting in Instant Brands’ historical distribution channels in North America, while supply chain issues persisted.”

Supply-chain experts said Instant Brands’ woes show how many retailers and manufacturers, particularly smaller operators without big capital cushions, are still coping with the financial overhang of the turmoil during the pandemic. International shipping costs, for instance, surged some 10-fold in 2021 from prepandemic levels and have only receded this year. 

Retailers have a lot of inventory that they purchased and imported at high rates and have shipping contracts negotiated during a period of high prices, “so that now maybe some of the cost increases are starting to come through,” said Lisa Ellram, a supply-chain management professor at Miami University in Oxford, Ohio.

The Downers Grove, Ill.-based company’s Instant Pot became a hit early in the pandemic as locked-down Americans turned to the all-in-one kitchen gadget to cook more meals at home. 

But consumer demand shifted just as port closures, shipping backlogs and soaring freight costs tangled the company’s supply chain. As overstuffed freight transportation channels started to crack and delays spread, lead times for ordering everything from raw materials to finished goods lengthened. Instant Brands said in its filing that it ordered parts further in advance and raised its prices to help offset those costs, according to court filings.

“In the second half of 2021, a supply chain perfect storm unfolded,” the company said in its bankruptcy filing. 

Instant Brands faced more challenges last year as retailers, overstocked with items consumers no longer wanted, slashed orders. The company cut its own production orders, raised prices and trimmed operating costs at least four times over the past three years, but still faced “significant pressure” on its balance sheet, according to court filings. 

Marko Bastl, director of Marquette University’s Center for Supply Chain Management, said many of the companies that made goods in anticipation of strong consumer demand today are coping with higher inventory carrying costs since the Federal Reserve began raising interest rates early last year. 

“Retailers will stockpile finished product, and distributors for example and manufacturers will stockpile their input materials, and many of them are really, really hurting now that we are coming slowly out of the pandemic and demand has shifted again,” Bastl said. “Given the increased interest rates and so on, their balance sheets are badly hurt.”

Instant Brands said in its bankruptcy court filing that it owes sourced finished goods vendors about $41.3 million, specialty material vendors about $8.4 million, and foreign vendors—including its Chinese manufacturers—about $45.3 million.

Source: www.wsj.com