What’s Going On With Global Supply Chains: A Primer For The Ordinary Consumer – News Couple
LOGISTICS

What’s Going On With Global Supply Chains: A Primer For The Ordinary Consumer


(AKA why this sofa you ordered is not here… and won’t come here tomorrow)

Disclaimer: This article is a diminutive of the less inclined shipping. If you have a deeper understanding of shipping, you may want to check out the Freightos Baltic Index instead.


Let’s talk about shipping.

You’ve seen Suez Canal memes, you know that furniture takes longer than usual to reach your door, and you’ve probably even heard of Pelotons being shipped by air to reduce delivery times.

While a cure for COVID is well on its way, there is no vaccine for what hits container shipping.

Spoiler alert, it has a container shipping cost from under $3,000 to $16,000 (yes, more than a new Toyota Yaris) and doubles as long — if not more — to make it across the Pacific.

But first…

How did we get here then?

We can trace the beginnings of the container crisis back to the COVID lockdowns when people started spending more on goods rather than experiences and services.

It started with toilet paper hoarding and soon escalated to horrific reports of hospitals lacking basic medical equipment.

But it is the surge in demand for goods, including the unprecedented growth in e-commerce, that has really led to today’s challenges.

And it’s not just sea freight.

A third of cargo is carried in passenger aircraft. When that stopped, the industry found itself in crisis and in just a matter of months, prices had risen by nearly 400%.

(credit: Lufthansa)

So, to meet capacity, airlines have started converting passenger planes into cargo planes on a large scale.

But back to those containers…

High cost of global shipping

Container shipping costs are usually shockingly low. crazy low. It may be cheaper to put the contents of an apartment in a container and ship it around the world a dozen times than to pay for storage for a year.

But this has changed.

When trying to reserve a specific slot on a container ship (yes, the ones that can handle the equivalent of 20,000 containers), prices are well over $16,000 (!).

Prices have risen even as shipping companies deploy 99% of all container ships in the world to keep up with demand. Enter, global container shortage.

(Source)

In the last quarter of 2020, it became clear that freight rates were not dropping anytime soon. The ships it was sailing on were stuck in a backlog before being unloaded due to the COVID outbreak in the ports and the lack of sufficient capacity to handle standard container sizes in the ports.

And of course, when anyone buys items from a store, part of that cost is shipping. More shipping costs, higher consumer costs.

MarineTraffic A traffic map of container ships waiting in place at the Ports of Los Angeles/Long Beach, January 13, 2021

But then things got worse.

Global logistics. So the backlog of ships off the coast of California means fewer empty containers are returning to Asia, which means fewer ships and containers available for export, raising the cost of shipping a container from Asia to Europe by 400% in November and December 2020. This also caused a backlog. standard delays.

That’s the cycle – too much demand, not enough supply, and with the free-market economics dictating freight rates, freight rates have gone up.

Then add some serious problems to the mix.

While the blockage of the Suez Canal received the most media coverage (and the Twitterverse), the impact of the ship itself being late en route was less severe than the cascading effects over the next few weeks.

With ships lined up behind since when, delays in the main trade corridor have caused prices to rise from Asia to the Mediterranean and Europe and reduced the possibility of a rapid turnaround on those vessels which would increase capacity

So when the COVID outbreak hit Yantian Port — which serves factories in the Shenzhen area and handles about 13 million TEUs (20 containers) annually — supply chains were really on the loose. And in a system that operates with no room for error, any additional stress leads to a massive backlash.

But there is more, and it will affect you personally

Even if you don’t care about the global economy or how the logistics industry works, this is important. It affects how your next phone charges, toilet paper availability, and the cost of food.

As you may have already collected, shipping delays mean you may have to wait longer to get your dining room table made in China, but the lasting effects are far-reaching.

Consumer behavior during the pandemic has pushed demand beyond available supply, resulting in product shortages and inflated prices for shoppers.

For example, with current steel deficiencyFactories are unable to produce as many cans as usual. And you know Italian tomato foodies insist that you need to make the perfect pizza sauce? They come in cansIt can only be canned from July to September, within 36 hours after picking.

Therefore, it may not only be difficult to find your favorite Italian tomatoes this year, but also likely to be more expensive.

Beyond the silicone baking tray, this has macro-economic ramifications. Small business owners are another victim of this.

E-commerce effect (No free shipping for global shipping)

First, 97% of US importers They are small and medium-sized enterprises (SMBs), which generally lack the cash reserves to survive in these circumstances.

Freightos has surveyed hundreds of importers who have used Freightos.comGlobal freight booking platform in January 2021, and again in June 2021, to see how they deal with supply chain challenges.

the answer? with great difficulty.

More than three quarters (77%) of SMEs reported that their businesses experienced supply chain difficulties.

More than half (53%) of those experiencing supply chain problems reported Their prices increased as a resultCompared to just 45% in January. Most of the Amazon sellers (73%) who raised prices did so by as much as 20%.

But these retailers also reported having low stocks, which means there are fewer products in stock for consumers due to supply chain chaos.

Many (29%) SMEs (38% of those experiencing disruption) reported cutting their profit margins due to higher shipping costs – compared to 26% (34% of those affected) in January. Most Amazon sellers (70%) who reduced their consumption did so by up to 20%.

We can safely say that SMEs are being crushed, and the impact of that will also be felt by the consumer.

Wonderful. So that’s it? All bad news?

Sure, on the surface, things are pretty rough right now, and even that might sound worrisome to someone whose business won’t withstand the current disruptions in the supply chain.

But shipping is a trillion-dollar industry, and no one wants it to collapse anytime soon.

So here are the positive points:

First, the global supply chain has not stopped. Despite the delay, the products continued to move around the world. It sounds obvious, but it really matters – it means there’s more flexibility from carriers, logistics providers, and supply chain managers than ever before.

Going forward, we are betting on looking for more digital solutions that harness transparency to help avoid similar crises in the future.

For our part, Freightos has been digitizing the space for the past eight years, helping players inside work more transparently and intelligently on a global booking platform. We like to think we’re doing a pretty good job. Most importantly, we work with great partners, and together we help ensure that the future of global shipping is better than ever.



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