Chiefly, Covid-19 is at fault, as it caused a double whammy effect:
- A drop in shipping volume forecast and poor geographical distribution of shipping containers.
- A boom in online shopping and, more recently, demand for even more stock as brick-and-mortar stores open up following the many global lockdowns of 2020 and 2021, too.
It isn’t only logistics costs that are affected by demand and issues caused by the pandemic. As we have been tracking here, China raw material costs continue to rise at a worrying pace, too.
Let’s explore some of the issues that have led to this supply chain crunch we’re currently going through and then why shipping bottlenecks are getting even worse in Asia right now…
A global container shortage is estimated to last until 2022
There have been some key problems facing shipping containers in 2020 and 2021 that are predicted to continue into 2022.
The demand for containers outstrips supply, and in many categories, the main manufacturers (who are in China) are at full capacity and can’t fulfil the demand right now.
Production was reduced in 2020 due to the pandemic, so they are still playing catch-up to a degree.
John O’Callaghan, global head of marketing and operations at Triton (a major container leasing firm), said during a call, “Despite the factories ramping up container production activity at the end of last year and beginning of this year, inventories of new containers remain very low. What’s sitting on the ground roughly represents only two to three weeks’ supply.”
Many containers simply aren’t in the right place.
They’re often held up due to port congestion.
This shortage of containers in China (or Asia more generally) has also led to price increases as even second-hand containers have almost doubled in price.
Also, due to demand, the shipping lines are in such a hurry to turn ships around that they are leaving empty containers behind when they return to China, hence containers being stranded where they’re not needed.
Read about the container shortage in more detail in this article.
Sea freight delays have become more acute
It’s taking longer to get goods from A to B.
Again, this all started due to the pandemic. and transitioning from low demand and lockdowns to very high demand has taken its toll on the ocean carrier shipping industry.
Only about 40% of container ships globally were on time arriving at ports in March, according to an analysis by Denmark-based Sea-Intelligence ApS, with average delays stretching to more than six days.
The delays are being caused by the vast restocking by businesses to satisfy post-lockdown consumer demand which rapidly ties up vessel capacity, exacerbates the shortage of containers and continues to drive up the costs of sea shipping. Even though sailing time hasn’t changed particularly (although the Suez canal blockage in March 2021 didn’t help), the time to unload is far longer.
Read more on this in this WSJ article.
Sea freight costs are at record high levels
To give you an example of how high the costs of shipping containers has risen, here’s one from the WSJ:
The cost of moving a 40-foot sea container from China to U.S. West Coast ports was quoted this week [May 18 2021] at $5,650, according to the Freightos Baltic Index, up 34.5% since the start of the year and 228% higher than the same period last year [in 2020].
Also, the SCMP report that:
“Freight rates between Shanghai and Rotterdam have grown to US$10,462 per 40-foot container, a year on year increase of 518 per cent.”
Strong demand from all sectors is driving this, although PlastEurope.com suggests that: “Chemical companies, in particular, have increased their demand for passage slots” and are therefore a large contributor to the price boom. They also suggest that this may herald significant plastic imports soon.
Even pallets are in short supply!
As the economy reopens, pallets are in short supply. Nervous manufacturers and retailers have hoarded them in warehouses, lumber costs have exploded, and there are too few truckers to haul them.
Lumber is one of the raw materials where costs are rising rapidly, and, as discussed in this episode of our podcast, pallets are an essential packaging element for shipping fragile goods, perishable foodstuffs, plants, and other items requiring sturdy protection.
So if you’re a regular user of pallets, expect further delays and cost rises as you pivot to using an alternative.
Editor’s note: Section added on June 16th 2021
And now to the big issue facing shipping from China as we write this article, in June 2021…
Covid-19 outbreaks in China, Taiwan, and SE Asia are a big risk to shipping and are already causing nasty bottlenecks
Covid-19 is to blame, again, for the bottlenecks we’re seeing in China (and SE Asia) these days. You may have heard that Guangdong province, in particular Guangzhou and Shenzhen, have had quite a few cases of the worrying Indian variant ‘Delta’ of Covid-19. This has led to strict local lockdowns and delays at the ports (which is where authorities believe the cases originated from port workers).
For instance, due to the disinfection and quarantine measures being employed at Yantian container port in Shenzhen (one of the world’s major container ports), “Maersk said it was now expecting delays of 14 days, with productivity at berths in the western area of YICT, where mainline vessels call, still only at 30%.”
A 2-week delay is a very serious bottleneck and the restrictions and testing of trucks coming into the port make it even worse, as it’s also reported that “substantial traffic jams are causing a shortage of trucking capacity, container pick-ups see delays of 10 hours or more and many hauliers require overnight time for haulage, storage and lifting, adding to costs.”
Because of normal ship transit times, the ripple effects won’t be felt on the West Coast of the U.S. for two or three weeks, and perhaps a month in Northern Europe. But, according to Forbes, they’re coming.
Read more about the state of the ports in the PRD here.
But it isn’t only China where Covid-19 has caused problems. The outbreaks are quite widespread across Asia, unfortunately. In Malaysia, Vietnam, and Taiwan, outbreaks have caused manufacturing areas to be locked down and production halted or at least dramatically slowed.
Taiwan, specifically, suffered outbreaks in its semiconductor industry, which is terrible news for chip buyers (which includes not only electronic products but also cars and many other complex goods) as this industry was already struggling.
This will cause further delays in shipments as the manufacturers struggle to make up lost ground, possibly leading to further price increases in materials and logistics costs.
Read even more about this in this article.
So, what can you do?
The situation isn’t great, but being warned and prepared makes a lot of sense.
- Maximize your chances of not receiving defective products by finding good suppliers and vetting them.
- Consider buying components in advance, especially for electronic products, before prices rise even further.
- Keep a close eye on material prices so you can challenge your suppliers on cost rises if needed.
- Get expert help to arrange your logistics – experienced local specialists may provide options you did not think of.
There is a light at the end of the tunnel, though. The experts interviewed in the various stories quoted here seem to think that things will settle down by 2022. Although perhaps this will depend on lockdowns not getting worse and the global vaccination rollout continuing at pace.
What are you seeing out there? Have you been affected by the supply chain crunch and escalating logistics costs? Let us know by commenting, please, or contact us with any questions.