(BLOOMBERG) – If it looks like shipping delays and skyrocketing delivery costs aren’t improving, it’s because they’re both getting worse.
Throughout the Covid-19 pandemic, the blame for disruptions in the global supply chain has shifted from virus outbreaks to container shortages, spendthrift Americans stuffing themselves with household appliances and tools to a huge ship running aground on the Suez Canal in March.
These still cause trouble, but now another hiccup threatens to prolong the pain, perhaps even long enough to disrupt Christmas shopping: Yantian’s main export hub in the heart of the factory belt of the China was partially shut down in June to control cases of the virus, reducing the limited capacity available in an industry that moves more than US $ 4 trillion (S $ 5.4 trillion) in goods through the global economy every year.
“The latest is the worst in terms of supply constraints,” said Steve Saxon, McKinsey partner in Shenzhen, China. He estimates that it could be a month before Yantian is fully operational again, with the fallout spilling over to other ports.
This means container shipping rates could remain high and delivery times could stretch even further ahead of the peak restocking season in August, when retailers like to fill warehouses with Christmas items.
“US importers are panicking,” says Saxon. “People are trying to get their hands on whatever ability they can get right now.”
With this dose of reality, here are the maritime signals to watch in the second half of the year:
It’s not just bad off the coast of Los Angeles and Long Beach, California. Ships awaiting unloading are stationed outside Singapore’s ports in Savannah, Georgia, and major European gateways for trade like Hamburg, Liverpool and Rotterdam also face bottlenecks and delays.
Dozens of ships are lining up around Yantian and, according to one estimate, more than 400,000 20-foot containers were stationary. So even as Yantian resumes normal operations, experts like Mr. Alan Murphy, CEO of Copenhagen-based Sea-Intelligence, said the shockwaves could be felt from afar. “There are literally hundreds of thousands of containers piling up in southern China, while other ports are already overcrowded to the max, and we have a severe shortage of space for ships and empty containers,” so that the situation of the South China port quickly becomes a problem. massive systemic disruption. “
A notice from Germany’s Hapag-Lloyd offers some perspective: From July 18, it will impose a “high season surcharge” of US $ 2,000 for every 40-foot container from East Asia to the United States. United States and Canada – a surcharge that in itself is higher than the full price for a container shipped on trans-Pacific routes in 2019.
The problem is, there are still not enough steel crates to meet demand on the most desirable routes, especially from Asia to the United States.
While shipping lines have deployed all of their resources and ordered hundreds of thousands of new containers, these are slowly coming online and won’t alleviate much of the capacity shortage if ports cannot handle the extra volume.
However, it is not just about ships. According to Craig Fuller, managing director of information and data company FreightWaves, imports account for up to one-fifth of trucking volumes.
“When you see this massive amount of imports coming into the freight market, it creates tremendous pressure in terms of trucking capacity or trucking demand,” he said.
There are not enough drivers in many countries, and shortages of equipment ranging from chassis to shipping containers are particularly acute around ports. Even with all of the supply constraints, the North American freight cycle is in high growth mode.
Some economists are speculating that as countries reopen and travel restrictions are lifted, consumers will cut back on online product purchases and go on vacation, easing the crisis in global trade in physical goods. But the pandemic is rewriting old theories.
Among the business losses of Covid-19 is the just-in-time inventory model – a justified strategy if there is reliable and cheap shipment to order.
This is largely because supply cannot keep pace with demand. Lean stores aren’t a problem if you know exactly when your next container convoy will arrive.
But such certainty is also rare these days, and no logistics manager wants to tell the boss they’re running out of something. So the drive to fill stocks could support demand even as people splurge on vacations and entertainment again.
“As some companies seek to have higher inventories – beyond usual inventory levels – there is a risk that this will lead to further increased competition for components and raw materials that are already in short supply,” said Shanella Rajanayagam, Commerce Economist at HSBC.