No Quick Fix for Shipping Crisis Creating Supply Chain Bottlenecks
WASHINGTON - A significant spike in demand for consumer goods in the United States and Europe, combined with disruptions caused by the coronavirus pandemic, has roiled global shipping markets, driving up the cost of moving containers of goods in the U.S. and globally.
That has resulted in rising prices and enormous delays at ports and logistics hubs, severely damaging supply chains around the world.
In some cases, the backups are having noticeable effects on day-to-day life. This week, supply shortages in Britain caused McDonald’s restaurants to pull milkshakes and some bottled drinks off their menus and forced the Nando’s chain of chicken restaurants to temporarily close 50 stores.
In the United States, it is now routine to see dozens of enormous container ships waiting outside major ports in California because of backups, while inland logistics hubs overflow with containers that have yet to be loaded onto trucks for shipment to their final destinations.
Rotterdam, Europe’s largest port, has battled problems with congestion this summer, as have ports in Britain.
A report released this week by financial services giant Citigroup and the Economist Intelligence Unit suggests the problems have deep roots and are unlikely to go away soon.
“Shifts in supply chains already were under way, owing to geopolitical and economic factors, and COVID-19 has accelerated some of them,” the report found. “Recent outbreaks of the virus — driven by the delta variant — mean that we have not seen the last of supply-chain disruptions yet, as economic activity across Asia-Pacific continues to be hampered.”
Complex set of problems
The current logistics crisis isn’t solely based on increased consumer demand, but it is certainly a factor. In the early days of the pandemic, container shipping use fell temporarily, with companies unsure of how consumers would respond to lengthy lockdowns and whether it would be safe for their personnel to travel.
But that quickly changed as consumers, forced to constrict their spending on things like vacations and dining out, began buying home office equipment and other goods to make lockdowns more bearable.
“By the middle of 2020, it was pretty clear demand was going to be robust,” said Steve Saxon, a partner with McKinsey & Company, in a video posted to the company’s website. “All those container ships were sailing again.”
It was only a few months before the industry was operating at full capacity, with 97% to 98% of container ships sailing at any given time.
Capacity limits emerge
But in the U.S. and Britain, particularly, capacity limits began to arise. A shortage of truck drivers in both countries led to bottlenecks at ports and inland rail hubs, forcing some warehouses to refuse delivery of new containers until backlogs could be reduced.
This led to further problems. Because containers were taking longer to be unloaded, they were not always available to be shipped back — full or empty — to ports in Asia that export to much of the world. Shipping companies such as Maersk have sent notices to trucking and logistics firms pleading for the return of containers and announcing expanded hours at facilities that can prepare them for a return trip.
At the same time, various ports, in both the U.S. and China, have had to temporarily shut down or reduce services because of COVID-19 outbreaks among the staffers who load and unload shipping containers. Just this month, the Chinese government shut for two weeks a terminal at Ningbo-Zhoushan Port, the country’s second largest, because of a COVID-19 outbreak.
Another event that caused a series of cascading delays was the accidental grounding of the container ship Ever Given in the Suez Canal, which blocked shipping through the key artery for six days in March.
Extreme price jumps
One result of these multiple crises had been extraordinary increases in shipping costs.
Just one year ago, according to data compiled by Xeneta, a firm that tracks shipping rates, it would have cost less than $2,000 to ship a typical 40-foot container from the Far East to northern Europe. As of this week, the current average price had soared to $13,607. Similarly, the price for moving the same container from the Far East to a port on the Mediterranean rose from $1,913 to $12,715.
Rates have skyrocketed for almost all major trade routes. According to Xeneta, the average cost of shipping a container from China to the West Coast of the U.S. went from $3,350 last year to $7,574 this week. Shipping from the Far East to the eastern coast of South America went from $1,794 last year to $11,594 this week.
It is important to note that these prices are only averages, and they are skewed by large importers who are able to negotiate discounts with shipping companies. Small importers looking to move a handful of containers can pay far more.
“The supply chain disruption is catastrophic across every consumer category,” said the Toy Association, a trade group for companies that make and sell youth entertainment products, in a statement provided to VOA. “Toy companies are suffering shipping price increases of 300 to 700 percent and a host of outrageous additional fees — if they can even get containers and space on ships.”
With the holiday season on the horizon, the group said retailers will face shortages and consumers should expect higher prices.
“Not only will shoppers undoubtedly and unfairly see price increases — they may not even be able to find the products they are looking for in the weeks and months ahead,” the group said.
No quick fix
Experts don’t expect much relief in the near term.
John Drake, vice president for supply chain policy at the U.S. Chamber of Commerce, told VOA that his association “is hearing regularly from our members who are facing significant challenges in getting goods and products to their customers on time.”
He added, “A lot of these delays are COVID-related — a shortage of truck drivers and warehousing space, a big shift in U.S. consumers spending money on goods instead of travel and entertainment, and ongoing COVID-related shutdowns at ports and factories worldwide, among other things. Unfortunately, we expect these delays to continue well into 2022.”
This article originally appeared on Voice of America