• FIC Hansraj

Capacity, Congestion, Cost: The Three C’s of The Global Shipping Crisis

From coffee makers to cars, the international shipping crisis is hitting the supply chains for everything.


We are highly dependent on the global web of delivery and transportation services. Over the past years, world sea trade has expanded magnanimously and countries worldwide rely on sea trade for importing and exporting both high-priced and low-priced goods. However, the Covid-19 breakout has brought chaos and turmoil in every aspect of life and across all industries, especially the shipping industry. The Ever Given which clogged up the busiest route Suez Canal back in March 2021 was the canary in the coal mine for the recent global trade slowdown. But before this calamity disruption, the Covid-19 pandemic hit port after port with the after waves hitting the consumer market.

The three C’s of the Global Shipping Crisis | FIC Hansraj
The Three C’s of the Global Shipping Crisis

During Covid, many countries were unable to meet their local demand due to the shut down of international borders of other countries. As the pandemic was at ease by the end of 2020, the demand for consumer goods started to come back in vengeance. Instead of tightening their belt, people began to increase their overall expenditure. This brought immediate pressure on the global supply chain. This has resulted in the cost of sea freight skyrocketing around the world. Sea routes across the world faced high traffic congestions. Due to this, oodles of ships remain anchored outside various ports and face challenges to get inside. When they reach the port, they struggle to load and unload the container due to the shortage of laborers during the pandemic. Many workers were affected by Covid in the past year. This has resulted in an acute scarcity of dockhands to debark the freight from the vessels and load it onto other automobiles. A delay in loading one vessel leads to an automatic delay in unloading another vessel.


In an attempt to reach back to their home country in time, the authorities have started to leave the containers in the destination countries further infuriating the container imbalance problem. The scarcity of shipping containers is causing a shortage in the supply of consumer goods. Consumers are soon going to witness the skyrocketing price of shipping goods.


The overall volume of goods exported by China has witnessed a 54% rise this year. On the other hand, goods being sent out of the United States have only increased by 4.5%. This depicts that a large number of shipping containers have been moving out of Asia, but very few are making it back to their home country. This has made the shipping companies realize how important it is to get the containers back to their country to keep meeting the countrywide demand for consumer goods.


The International Shipping Crisis | FIC Hansraj
The International Shipping Crisis

Unfortunately, this crisis has acted as a blessing in disguise for the shipping industry. They are at the stage of making record profits without introducing new ships, vessels, and services. Currently, the shipping lines are not considering contract rates from the importers. The importers are made to pay “spot” rates which are considerably higher than contract rates and do not guarantee any specific transit time or service. This has resulted in them making extraordinary profits and exploiting the importers.


Experts across the globe have predicted that the shipping crisis is going to continue in 2022 and the situation is not going to stabilize soon.


But why will it take so long for the crisis to come to an end?

To meet the growing demand due to the pandemic, new ships and containers need to be constructed. However, the construction of new ships and containers takes a long period to get ready and start running.


Supply management and forecasting are of prior importance, stocking goods well in advance, considering peak times, shipping times and delays into our future planning is vital. Those organizations that can administer strong forecasting and planning systems, whereby stock levels are maintained at a constant level, will mitigate the risk of future supply chain issues. The pandemic has put intense pressure on the flow of ships from Asia to the west. If countries do not act wisely and take keen steps, there can be a far more long-lasting impact on the industry.


References:

CNN Financial Times

Forbes



Author: Lavina Garodia