Continued Uncertainty in Global Shipping through 2021

Continued Uncertainty in Global Shipping through 2021

Posted on September 2, 2021

As I drove into work one sunny and warm morning last week, I notice a large crack running right through my windshield (what was only a tiny chip the day before became a full-on windshield casualty from a rogue rock on I-94). So I began the process of working with the insurance agent and glass repair specialist. After scheduling the repair for later that week, the scheduler mentioned that I was one of the lucky ones! Some common windshields have been hard to come by, putting people out for three months or more.

Now, this was certainly not an emergency. However, it brings us back to the reality that we still live in a disrupted world where global supply chains and logistics struggle to keep up with everyday demands across the world.

Global supply chains, shipping containers, and overland travel have had significant disruptions due to the global pandemic. The sudden halt in China of some of the busiest shipping ports in early 2020, the quick changes of consumer spending throughout the pandemic, several major man-made disasters (the Suez Canal blockage) and environmental disasters, including the most recent flooding in China and Europe, have turned the maritime shipping business on its head.

So, when will the shipping across the globe return to normal? Most experts agree it will be well into 2022 before we see some consistency coming back into global shipping. Currently, 30-40% of sea cargo arrives on time, which is much lower than pre-pandemic levels, and the shipping costs have increased dramatically. Companies are seeing as much as 500% increases in the cost of shipping containers traveling from China to the US. What was once $3000-$5000 expense for a 40-foot container is now is well over $20,000, reports Forbes (Verdon, 2021). Many businesses are forced to make tough decisions on how to afford these increases, if they should be passed on to consumers, absorbed by the business, or if the items should be delayed (Butterbrodt, 2021).  Philip Damas, Managing Director at Drewry told Reuters  that “these factors have turned global container shipping into a highly disrupted, under-supplied seller’s market, in which shipping companies can charge four to ten times the normal price to move cargoes (Muyu Xu, 2021).”

We also see information from shipping companies like Maersk reporting huge gains with their first-quarter 2021 revenues over $12 billion dollars, a 30% increase over the previous year (Baldwin, 2012). Shipping prices are higher than ever, but demand is also very high. Early fall is when US consumer spending typically rises for the back-to-school and holiday shopping season. While anticipating these habits, a premium is placed on getting goods to the US, and containers are shipped back empty due to timing and turnaround,  creating a shortage in shipping containers for exporters in the US.

Once the ships reach the US many spend days or even weeks waiting to be unloaded, and further transport inland becomes difficult with widespread labor shortages. “ The railroads are full. The warehouses are full. Port terminals are full. Ships are coming in and waiting to get worked. The factories are behind in orders. This incredible demand has got everybody in the entire value chain just clipping out at levels we never could have imagined — and it’s still not enough,” says Gene Seroka, executive director of the Port of Los Angeles (Miller, 2021). Maersk highlighted that they see 30% more cargo through ports, and that means you need 30% more of everything else beyond the port of entry to process the cargo (Baldwin, 2012).

North Dakota Soybean exporter Bob Sinner explains challenges for exporters sending goods from the midwest. There is a geographic mismatch, where a large amount of products in the midwest (such as soybeans) are waiting to be exported, but that takes additional time and logistics for the containers to be loaded and sent back to ports. Shipping companies do not want to take that time, and they are more willing to send empty containers back to Asia for more consumer products. Where the shipments from Asia to the US  pay a very high premium, this mentality comes with increased pressure on US producers to their Asia clients. “If we can’t deliver products in an efficient and reliable way, customers are going to look elsewhere,” says Sinner.

This fall will look very different to the American consumers who are used to full shelves of goods throughout the holiday season. Experts say that there will be many more out-of-stock goods with the increased shipping rates, railway disruptions, and chassis shortages (Tan, 2021).

Finding ourselves still entrenched in the impact of the global pandemic, many of us seek to find some normalcy, but we will not see it in the global shipping industry quite yet. Normalizing shipping container pricing and increases in the labor force may be on the horizon for 2022 as we adapt to more hiccups along the way.

References

Baldwin, S. (2012, July 16). How Maersk Dominates the Global Shipping Industry. Retrieved from CNBC: https://www.cnbc.com/video/2021/07/16/how-maersk-dominates-the-global-shipping-industry.html

Butterbrodt, L. (2021, August 9). Shipping Delays Affect Northern Minnesota Game Businesses. Retrieved from Post Bulletin: https://www.postbulletin.com/business/small-business/7143695-Shipping-delays-affect-northern-Minnesota-game-businesses

Miller, G. (2021, August 3). In the Eye of the Congestion Storm: Q&A with Port of LA’s Gene Seroka. Retrieved from Freight Waves: https://www.freightwaves.com/news/in-the-eye-of-the-congestion-storm-qa-with-port-of-las-gene-seroka

Muyu Xu, R. K. (2021, August 5). China-U.S. Container Shipping Rates Sail Past $20,000 to Record. Retrieved from Reuters: https://www.reuters.com/business/china-us-container-shipping-rates-sail-past-20000-record-2021-08-05/

Tan, W. (2021, August 2). Another Shipping Crisis Strikes, Threatening Delays to Black Friday Shopping. Retrieved from CNBC: https://www.cnbc.com/2021/08/03/shipping-crisis-strikes-black-friday-shopping-amid-europe-china-floods.html

Verdon, J. (2021, August 3). Shipping Container Crisis Could Derail Holiday Toy Sales. Retrieved from Forbes: https://www.forbes.com/sites/joanverdon/2021/08/03/shipping-container-crisis-could-derail-holiday-toy-sales/?sh=7a13bde8f89e