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?
What is a spot rate?
Spot rates refer to the current market value for a commodity. For example, the cost to secure a shipping container.
Covid and the rebound
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 caused this spike in demand?
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 are through the roof! In fact they are hitting records left and right as demand for consumer products soares around the globe. The result is some serious congestion at major ports in the US, Europe and even down under in New Zealand. Ports are struggling to unload the ships fast enough, and in several cities in the US ships are being ordered to drop anchor outside and wait.
Covid strikes again
Despite making a lot of progress towards getting back to ‘normal’ post pandemic (whatever normal means), Covid is 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. It didn’t get the media attention that the meme-able Suez Canal disaster got, but the fallout has been more significant and it could take months to clear the backlog.
Spot rates soar
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 has more than tripled since 2019.
Spot rates for TEU (a twenty-foot container) hit $5,589 on the China to Northern Europe route last week, a more than 600 percent increase from the same week pre-pandemic.
Lengthy delays for importers
High demand + congestion = delays.
If you’ve hopped online lately to purchase just about anything, you might have noticed it’s out of stock. Experts in the industry warned the real world effects for consumers would be felt some time down the track, and well… we’re now down the track. You’ll just have to wait for those dog hair clippers you ordered for your spoodle. Sorry spoodles.
It was reported by Sea-Intelligence Maritime Analysis that on-time performance (a measure of how many vessels arrive within 1 day of their expected arrival) in some regions had dropped to less than 25 percent. That’s down from 72 percent during April in 2020.
The congestion problem is seeing some carriers skip the worst affected ports altogether, which is further exacerbating the problem.
Consumer prices on the rise
At the end of the day, someone has to pay. And it’s usually the customer. Just ask anyone building houses at the moment. Stock is low, demand is high, and the effects are starting to trickle their way 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, utes, 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 for a Free Consultation and we’ll help you find a solution that works for you.