Port delays, container shortages, Covid outbreaks, and soaring costs; the shipping chaos continues and there is no end in sight.
Port delays, container shortages, Covid outbreaks, and soaring costs; the shipping chaos continues and there is no end in sight.
In today's Epic news, we return to the topic of shipping. Unfortunately, the news is not all that Epic. Container shortages, delays at major ports, skyrocketing spot rates, and the ever present threat of Covid; on land and out at sea the supply chain is buckling under the pressure.
As a sourcing agency we are always updating our approach to help clients navigate the ever changing world of shipping, but as many experts in the field have noted, the current situation is unprecedented.
So, why is global shipping in such dire straits?
Spot rates refer to the current market value for a commodity. For example, the cost to secure a shipping container.
The Covid pandemic resulted in a decline in global trade the likes of which the modern world had never seen. The pandemic wreaked havoc on demand and carriers drastically reduced their capacity in an attempt to minimise the damage.
What few predicted however, was just how pronounced the rebound would be when ports opened up again. If Covid was the receding shoreline before a tsunami, what we are experiencing now is the wave. That wave of demand isn't slowing down and carriers say there simply aren't enough containers, and there aren't enough ships.
What happens when half the world's population gets stuck indoors? Everyone starts buying stuff online, of course. And where does most of that stuff come from? China. In a container. On a big ship.
Chinese exports hit records left and right as demand for consumer products soared around the globe. The result is serious congestion at major ports in the US, Europe, and beyond. Ports are struggling to unload the ships fast enough, and in several cities in the US, ships have been ordered to drop anchor outside and wait.
Despite making a lot of progress towards getting back to 'normal' post pandemic, Covid remains an ever present threat to global trade. This became very apparent in May following a Covid outbreak at the Yantian International Container Terminal in China, one of the busiest ports in the world.
The outbreak sparked a partial shutdown of the port that sent ripples around the shipping world. The fallout was significant and it took months to clear the backlog.
As we all know from economics 101, when demand soars and supply can't keep up, prices rise. With the scarcity of containers and ships to load them on to, importers and exporters have been feeling the pinch as spot rates soar. To give some sense of just how significant the rise has been, the cost of shipping a container from China to the West Coast of the USA more than tripled from 2019 levels.
Spot rates for TEU (a twenty-foot container) hit $5,589 on the China to Northern Europe route, a more than 600 percent increase from the same week pre-pandemic.
High demand + congestion = delays.
If you've hopped online lately to purchase just about anything, you might have noticed it's out of stock. The congestion problem is seeing some carriers skip the worst affected ports altogether, which is further exacerbating the problem. It was reported that on-time performance in some regions dropped to less than 25 percent — down from 72 percent in April 2020.
At the end of the day, someone has to pay. And it's usually the customer. Stock is low, demand is high, and the effects are starting to trickle down to the consumer.
The invention of the shipping container you can fill with stuff and send to the other side of the planet was a game changer. But, it looks like that system has finally reached its capacity.
The effects are now being felt by exporters, retailers, and consumers as prices rise, container costs soar, and shelves don't get restocked. Gym equipment, clothing, food, vehicles, building materials… the list goes on. Industries across the board are now experiencing the effects and things don't look likely to return to normal any time soon.
If you're finding it difficult to navigate the shipping chaos, contact Epic Sourcing UK for a free consultation and we'll help you find a solution that works for you.
TK
