The global shipping crisis has spread so widely that consumers could end up paying very high prices to get needed products and even Christmas gifts. The container emergency is not anticipated to end soon.
The cost of importing products from China to the rest of the world has skyrocketed to unthinkable levels. This fact has motivated companies to increase their efforts to source more locally.
“If you used to pay US $ 2,000 to move a container from China to the west coast of the United States, now you have to pay US $ 20,000,” explains Teddy Heinsen, president of the Association of Shipowners of the Dominican Republic.
“It is really difficult,” he explains.
Behind the spectacular increase in the value of ocean freight is the so-called “container emergency. ” This problem has resulted in an unusual shortage of space available to transport products from Asia to the West.
Added to the lack of containers are the traffic jams that exist in the most important international ports and the temporary closures of some Chinese maritime terminals. These facilities were shut down due to strict measures to control the Covid-19 pandemic.
Like a gear lacking oil, when one of the parts gets stuck, the whole system is disrupted.
Now that the international economy has begun to recover and consumers in different countries want more products, the global shipping system is struggling to meet that demand. A demand that will increase as we get closer to the end of the year holidays.
That is why importers of all types of products, especially electronic items, anticipate difficulties in the season of Christmas shopping because of the container emergency.
“There are not enough ships, there are not enough containers, and there are too many delays at the ports to get in and out. This affects the entirety of the logistics chain,” says Heinsen.
“What is happening is tremendous,” he tells BBC Mundo. “It’s not just the toys. It’s a general problem.”
“… the price of a container from China to North America has increased by a factor of ten …”
For instance, the price of a container from China to North America has increased by a factor of ten, he explains. Moreover, importers fear that at the end of the year that costs will continue to increase.
“We don’t know how this may affect the price consumers will pay, but some toys will most likely not be available,” he says.
Heinsen also points out that the difficulties are not only related to the shortages caused by the container emergency or bottlenecks in ports.
“Some Chinese companies are still manufacturing less,” he points out, due to the restrictions associated with the pandemic.
The Asian giant has imposed strict rules to control the spread of new outbreaks of the virus. When there are spikes in certain places, production is delayed. This causes delivery times to be extended.
Thus, each time a factory and a port closes, some importer is left without a delivery. At the end of the supply chain, some consumer is left without their product.
Now that Christmas is only three months away, the big problem parents may have will be that they may have to explain to their young children that… well… Santa… uh… he couldn’t bring all the presents this year.
Buy your Christmas gifts now.
Shipping experts say the pandemic has sparked one of the biggest crises in history since containers began to be used during World War II.
“The entire port infrastructure system has been overwhelmed,” said John Manners-Bell, chief executive of consultancy Transport Intelligence.
Consumers feel the effects of the container emergency when they see product delivery delays, shortages, and subsequent price increases.
“Buy your Christmas gifts now,” Steve Lamar, executive director of the American Shoe and Apparel Association, recently warned.
Lamar has described the commercial transportation problem as an “acute maritime crisis.” In a letter to Joe Biden, he asked him to take steps to help end “a destructive cycle of lengthy delays and skyrocketing costs.”
The pandemic has caused all kinds of disruptions in the supply chain, ranging from a shortage of raw materials and labor to a lack of space on cargo ships and in marine terminals.
Much of this situation is a hangover from last year. During 2020 companies reduced their purchases amid the lockdowns. Many trucking firms also reduced the scope of their operations.
Experts argue that when demand re-emerged this year in many parts of the world, the shipping system was not prepared to respond to renewed economic activity. Hence, the container emergency occurred.
The puzzle is complicated if we add to the temporary closure of port terminals in China and factories in countries such as India, Vietnam, or Bangladesh due to the pandemic.
The “madness” of prices driven by the container emergency
According to data from Drewry Shipping, a firm that monitors ocean freight prices globally and publishes them in its Drewry World Container Index, the cost of shipping a container of about 12 meters (40 feet) on eight of the main eastern routes reached US $ 9,613. This represents an increase of 360% when compared to a year ago.
The most significant price increase occurred on the sea route between Shanghai and Rotterdam, in the Netherlands, where the cost rose 659%.
In Latin America, the situation varies from country to country. However, prices change substantially when it comes to a small company with little bargaining power or a giant firm that achieves volume rates.
For example, the cost of shipping a container between Shanghai and South America before the pandemic was about US $ 2,000 on average.
Now, however, it has risen to more than US $ 7,000. This is according to estimates made by specialists from the Inter-American Development Bank, IDB.
Although the rates have varied from week to week, the figures are constantly changing.
In dialogue with BBC Mundo, Harvard Business School professor Willy Shih explained that the maritime transport crisis and container emergency had had effects that have extended to the rest of the economy.
“Many logistics costs have reached record highs, and eventually, someone has to pay for them,” explains the researcher. “In most instances, it will be the consumers.”
Another big challenge, he adds, is those small companies that cannot pass on costs will be exposed to a critical financial situation.
Some may even have to close their doors.
But until this critical situation is reached, businessmen are trying to expedite their Christmas imports because the next few months will be complex.
Donald Nairn, the owner of the Scottish toy company Toys Galore, told the BBC that almost all his suppliers had warned him that there would be a shortage of products at Christmas.
And at this point in the year, “at least half have raised prices,” Nairn said.
“We will do our best to absorb the costs, but inevitably there will be price increases.”
In the particular case of the United Kingdom, the global crisis in maritime transport is compounded by the effects of Brexit and the shortage of truckers to transport products. This has created a set of circumstances that does not bode well for results.
For how long?
As things stand now, experts agree that the logistical problems to transport products will continue until much of 2022.
Companies such as Adidas, Crocs, and Hasbro have already warned that they are preparing for a problematic year-end due to logistical disruptions.
One of the biggest challenges they face is making business decisions without knowing what will happen with the delta variant and how that will affect ocean freight rates.
For example, the partial closure of the Chinese port of Ningbo-Zhousha in August, after a port worker tested positive for COVID-19, forced the leading international shipping lines, such as Maersk or Hapag-Lloyd, to look for other port alternatives and warn customers about delays.
If high ocean freight prices remain, he adds, the debate over whether it is wise to rely as much on China as the world’s manufacturing hub is likely to grow.
With relations between China and the West under continuous tension, there is the idea that globalization may give way to a regionalization process from the pandemic. As a result, some industry analysts have begun to argue that goods should be produced “closer to home.”
For now, the big challenge for retailers is meeting the Christmas demand despite the container emergency.
The longer this crisis in shipping lasts, the more difficult buying items for Christmas will be.
If you are interested in discussing how Prince Manufacturing can help you move your manufacturing operations from Asia to North America please contact us and one of our experts will be in touch with you.
Photo credit and license from Kees Torn. Used by permission.