Your favorite brands pay 10 times the regular price of shipping your stuff across the ocean.
Shortages also abound.
All thanks to a chaos in the maritime trade that has been going on since last year.
The price of a shipping container looks a lot like a stockpile of memes.
Soaring shipping costs indicate our shortage of semiconductors, wood, chicken, chlorine and, really, “almost everything.” The pandemic shattered the supply chain last year, and shipping companies that carry goods around the world are still not recovering.
We rely on a complex global supply chain. This is the reason why we can get a two day shipping on the super cheap Wayfair furniture built in Vietnam or why seafood caught in the United States is so cheap (much of it is actually processed in China before it was sent back here).
Shipping fuels our ability to purchase a wide variety of inexpensive products. This system needs a lot of things to work, but I’m going to distill them into a few important things:
And, all of those things have broken at some point over the past year and a half! In fact, many of them are still broken. Here’s how it happened and why the shortages continue.
The strange new mega-ships of our world
I am new to the world of shipping. So, to better understand what’s going on with our current chaos, I spoke with Simon Sundboell, a 20-year veteran of the container shipping world based in Copenhagen. He is the founder of the maritime transport intelligence company eeSea.
To understand the shipping debacle, Sundboell took me back to the mid-2000s. Shipping was a more fragmented industry than it is today, and manufacturers and retailers could pit these various companies against each other. to each other to get low rates. To achieve economies of scale, major ocean carriers began to require larger vessels.
An analysis of the fleet listed on the Hapag-Lloyd website, which is the sixth largest shipping carrier in the world by volume, clearly shows. I discovered that the average German shipping line ship built in the 2000s could hold just under 6,400 containers about 20 feet long. For ships built after 2010, this number double to about 11,500.
Sundboell told me that these large vessels have been successful in increasing the profitability of Maersk, MSC and other large carriers, but the margins are tight. The ships could not be filled to less than about 90% in order to keep these carriers in operation.
It reminds me of America oddly long freight trains, which were three miles long in order. On a completely different note, chicken breasts have increased by 80% over the last decades (and the birds themselves grow Faster).
In our pre-pandemic time, everything was getting bigger and bigger! But maybe we flew too close to the sun.
The first blow to the global shipping network came in the early spring of last year, Sundboell told me. As the pandemic spread around the world, it was unclear whether factories in Asia would be opened or whether consumers around the world would even have the option to purchase durable goods. So they started to cancel the departures.
“The carriers are sitting here in March 2020, looking at a market where they don’t know if the demand, that is to say the containers that go on their ships, is going to drop by 5%, 15%, 30% or 50 %, “Sundboell told me. And remember, these companies can only profitably operate their mega-ships if they are full.
As a result, carriers began to “empty” or cancel their crossings. Major maritime alliance announced discounts of up to 22% on travel between Asia and Europe in spring 2020. Between Asia and North America, carriers reduced by about 20% of capacity.
A manufacturing slowdown and forecasts of an economic collapse forced the shipping world to a halt in early half of 2020. By the second half, the world was starting to “turn back on.”
Rather than becoming frugal, consumers started spending all the money they had hidden for travel and dining on thing. It’s no secret that more people have bought treadmills, sofas and hair dye than ever before. This trend is again turn on the American ports that handle our imports. Port of Los Angeles, the largest in the United States by volume, broke its cargo record in the first quarter this year. The port of Long Beach, the second largest, handled more cargo than ever last month.
This unusual boom in volume helped trigger massive traffic jams in the port. Let’s focus on Long Beach and Los Angeles, the two largest ports in our country.
In the first half of 2020, data from the Pacific Merchant Shipping Association showed that less than 5% of shipments had a dwell time – the time a ship spends in a port rather than at sea – greater than five days. . It grew steadily throughout the year. And from October to December of that year, about a quarter of the ships waited more than five days.
By the end of January 2021, some 55 ships were crammed around the ports of LA and Long Beach, apparently lying in the ocean for up to two weeks. FreightWaves noted that it took longer for some of these ships to simply be unloaded than for them. cross the pacific.
Why is there a delay in unloading these vessels? The boom in demand is, of course, one of the main reasons. US ports are also experiencing a labor shortage. There is a persistent shortage of longshoremen who undertake the crucial task of getting these containers off the ship and loading them onto trucks or trains. Dozens of people have been quarantined due to the coronavirus at various times Last year.
Above all, when something gets lost with shipping, there is a major butterfly effect. A ship unloaded two weeks late in Los Angeles will also be two weeks late when it arrives in, say, Chittagong, Bangladesh, to load IKEA furniture. The ship before that may also have been two weeks late, so the carrier could simply cancel the ship IKEA was waiting for space on, Sundboell said. Then IKEA will have to scramble to find another way to move your nightstand – and potentially every order they’ve placed afterwards, which will now be pushed back on the road.
Midway through 2021, the situation has not improved.
There is another shortage at the root of our shortages: the lack of shipping containers. Or rather, a lack of containers where they belong.
Some of these containers are currently used on ships, as Flexport’s Ryan Petersen noted on Twitter this week. This includes ships that might be lying around in the ocean, waiting to dock and unload.
The biggest problem is that a lot of these containers don’t go back to Asia to be reloaded.
US exports have not kept pace with imports from China, our largest trans-Pacific trading partner. According to SONAR data from FreightWaves, the volume of imports from China via shipping is up 54% year-over-year. Exports only increased by 4.4%. This means that many containers are leaving Asia, but not enough have returned.
Until recently, as Petersen explained in a recent episode of Bloomberg’s Odd Lots, shipping companies didn’t realize they had to bring in more empty containers than ever before. We’re still fixing this container imbalance, and experts predict it will stay wobbly until 2022.
At least the expedition scions are doing well
The dirty secret is that the bottlenecks in shipping right now are apparently bad for everyone except the shipping companies. If those containers were to stay in Los Angeles instead of returning to Shanghai, it would only reduce shipping capacity … resulting in ever higher freight rates and increasing profits for major ocean freight lines.
Indeed, recent years have been among the first for some time that shipping companies are win the game. Maersk, for example, made a profit of $ 2.9 billion in 2020; he lost silver three of the four years leading up to 2020.
Shipping companies did not have the upper hand over the brands they carried business before the pandemic. Now Zara, IKEA and their peers are scrambling to find space on one of these ships and are willing to pay a heavy price, Sundboell told me.
This will continue to make everything more expensive. Sundboell gave the example of Nike, which typically pays $ 2,000 for a 40-foot container full of sneakers. Now that container could be over around $ 15,000 to $ 20,000.
A shoe or clothing manufacturer like Nike wouldn’t normally worry about the cost of transporting your goods across the ocean. “It wasn’t something you would ever worry about,” Sundboell told me. “Now suddenly at $ 20,000 you start to see well that in margins that are not even profitable to sell it anymore.”
Should we prepare for a sneaker shortage now? Get ready, guys …
Let me know what you think of this latest dispatch at firstname.lastname@example.org. What’s the next shortage? Do you have any other ideas on what’s going on in shipping? Thanks for reading!
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