How Serious Are Shipping Delays For U.S. Business?

The global shipping industry has endured a hammering over the past six months. In March the blockage of the Suez Canal caused global trade to grind to a halt, followed quickly by a shortage of shipping containers in April and then several outbreaks of Covid-19 at major Chinese ports in June. Now flooding in China’s Henan Province, as well as in parts of Western Europe, threatens to stretch supply chains to breaking point, with many goods likely to be out of stock this holiday season.

The flooding, which hit China in early June and parts of Belgium, Germany and the Netherlands in mid-July has caused havoc for global supply networks. The waters wrecked railway lines used to transport goods and raw materials in both regions and also damaged factories and warehouses as well. The result means a major a backlog in goods coming to the U.S. over the next couple of months.

Flooding in Western Europe destroyed homes as well as railways, warehouses and factories.

This is obviously bad news for businesses. Pawan Joshi, executive vice president of supply chain software firm E2open has predicted that “Black Friday and the holiday season, for which products (and raw materials) are being staged, will bear the brunt of the impact”. He has warned that many products will be in short supply for the back to school period, including consumer electronics, clothing and appliances. However, the real struggle will come during the holiday sales, when many retailers will be forced to forgo their usual price slashing.

The effects of this backlog are likely to be felt by every industry, with Apple CEO Tim Cook warning of high freight costs during an earnings call with investors. The situation has been described as “another body blow” for global supply chains.

Ironically U.S. ports are currently dealing with the exact opposite problem: a massive buildup of freight as a result of increased demand following the pandemic. Docks and railcards are presently struggling to move the amount of cargo they have stacked up, leading to yet more delays and some companies losing their merchandise in the chaos.

Though the situation is reversed, the outcome is exactly the same - manufacturers are being hit with additional costs and losing business as a result of long wait times. Honeywell International, an industrial conglomerate, have complained of a revenue decrease of $200 million due to supply chain issues.

Long Beach port in California saw its busiest month since 1995 in May.

The backlog at major U.S. ports is pretty extraordinary. Goods coming from China currently have a wait time of 15 to 20 days after arriving in the country and one quarter of all intermodal shipping containers are unavailable because they’re being used as temporary storage at the docks. In May, Long Beach port moved 907,000 containers - its highest figure since 1995. Savannah, meanwhile, moved 5.3 million containers in the twelve months ending June 2020: a record for the Georgia port and an increase of 20% on the previous financial year.

As with the anticipated holiday shortfall, these delays are hitting shops and shoppers alike. Consumer prices have already jumped by 5.4% compared to a year ago. Now household goods manufacturer Proctor & Gamble says it plans to raise its prices again, following an increase in expenses of $1.9 billion this year. Colgate-Palmolive has warned of similar plans to pass on costs to its customers.

This rollercoaster supply chain is likely to hurt businesses even more over the next few months. The past year has shown how susceptible global networks are to natural phenomena and consumers are likely to feel the effects of these freak events first hand before long.