Pepco bets on new Poland hub, long freight deals to build logistics resilience

(Corrects 2nd bullet point and paragraph 7 to specify that 35% container ship reliability refers to overall shipments, not Pepco specifically.)

By Marta Maciag and Alicja Surdy

GDANSK, Sept 21 (Reuters) - European discount retailer Pepco is counting on long-term freight contracts and a new Polish distribution hub to soften the blow from higher shipping costs and mounting supply chain disruptions.

Warsaw-listed Pepco, which operates more than 4,000 stores in 19 European countries, on Thursday opened a distribution centre near the Baltic port of Gdansk, Poland, aimed at supporting rapid store expansion and improving the resilience of its supply chain.

Retailers globally are grappling with elevated freight and fuel costs stemming from the conflicts in the Middle East, with disruptions in the Red Sea and the Strait of Hormuz having snarled global shipping routes.

"With quite long-term contracts ... we are able to mitigate the peaks (in costs) right now," CEO Stephan Borchert told Reuters, saying the company had secured container agreements extending beyond next summer.

Pepco competes in a crowded discount retail market against rivals such as Netherlands-based Action and LPP's budget brand Sinsay, making efficient logistics critical to maintain its low-price advantage.

SUPPLY CHAIN DISRUPTIONS

"I've been in supply chain for 45 years and it's never been like this," Pepco's Logistics Director Martin White said, citing the really challenging combination of disruptions including forced changes in shipping routes and typhoons in China that stranded Pepco freight in Shanghai in August.

Because of these disruptions, only about 35% of overall container shipments arrive on time, White said. Supply chain adviser Sea-Intelligence had put global schedule reliability at 56.4% in July, with Shanghai at just 21%.

Part of the Gdansk site will act as a deconsolidation centre that will allow Pepco to unpack containers and decide where to send goods after they arrive—calls that were previously made while stock was still in Asia.

Borchert said the company was not building up extra inventory buffer, relying instead on better tracking and long-term freight deals to manage the situation.

He added Pepco would do everything it could to avoid passing higher costs on to customers, but would look at this option 'selectively' if the entire industry was forced to act.

Neither White nor Borchert provided detailed figures on the higher shipping costs.

(Editing by Milla Nissi-Prussak)