The pandemic has caused all sorts of supply chain disruptions ranging from shortages of raw materials to lack of space on ships.
The cost of importing goods from China to the rest of the world has skyrocketed to unthinkable levels.
“If you used to pay US$2,000 to move a container from China to the U.S. West Coast, now you have to pay US$20,000,” explains Teddy Heinsen, president of the Dominican Republic Shippers Association.
Behind the dramatic increase in the value of ocean freight is the so-called “container crisis”, i.e., an unusual shortage of available space to transport goods from Asia to the West.
In addition to the lack of containers, there are traffic jams at major international ports and temporary closures of some Chinese maritime terminals due to strict measures to control the covid-19 pandemic.
As if a gear is lacking oil, when one part gets stuck, the whole system is disrupted.
So now that the international economy has begun to recover and consumers in different countries want more products, the global shipping system is struggling to meet that demand.
A demand that will increase as we approach the holiday season.
That’s why importers of all kinds of products, especially electronics, are anticipating difficulties during the holiday shopping season.
“Most importers are doing their Christmas shopping right now,” he adds. But because the situation is so challenging, “it is very likely that there will be a shortage of Christmas products because they will not arrive on time.”
“Also some Chinese companies are manufacturing less,” he notes, because of the restrictions associated with the pandemic.
Because the Asian giant has imposed strict rules to control the spread of new waves of the virus, when there are outbreaks in certain places, production is delayed and that causes delivery times to be extended.
So, every time a factory closes, every time a port closes, some importer is left without his delivery. And some consumer is left without his product.
Businessmen and experts warn of product shortages and price hikes at Christmas due to the shipping crisis.
And consumers feel it when they see product delivery delays, shortages or price increases.
The pandemic has caused all sorts of supply chain disruptions ranging from shortages of raw materials or labor, to lack of space on cargo ships and at marine terminals.
Much of this situation is a hangover from last year. When companies scaled back their purchases amid the confinements, many shipping firms scaled back their operations as well.
But when demand resurged this year in many parts of the world, experts argue, the shipping system was not prepared to respond to that revival.
Add to that the temporary closure of port terminals in China or the closure of factories in countries such as India, Vietnam and Bangladesh because of the pandemic, and the puzzle becomes more complicated.
Around 80% of the goods we consume in the world are transported by sea, according to estimates by the United Nations Conference on Trade and Development.
So if container rates go up too much, it will end up hurting consumers.
The “madness” of prices
According to data from Drewry Shipping, a firm that monitors global ocean freight rates and publishes them in its Drewry World Container Index, the cost of shipping a container of about 12 meters (40 feet) on eight major East-West routes reached US$9,613, an increase of 360% compared to a year ago.
The biggest price increase occurred on the sea route linking Shanghai and Rotterdam in the Netherlands, where the cost rose 659%.
For example, the freight cost of a container between Shanghai and South America before the pandemic was about US$2,000 on average.
Now, however, it has risen to more than US$7,000, according to estimates made by specialists at the Inter-American Development Bank, IDB.
For how long?
As things stand now, experts agree that the logistical problems of transporting products will continue until much of 2022.
Companies such as Adidas, Crocs and Hasbro have already warned that they are preparing for a difficult end of year due to logistical disruptions.
One of the biggest challenges they face is having to make business decisions not knowing what is going to happen with the delta variant and how that will affect ocean freight.
