Shipping Container Shortage Push Supply Chains To A Breaking Point As Freight Rates Soar 150%
Based on this Epic Economist Story
Supply chain problems are getting dramatically worse, aggravated by persistent port congestion and shipping delays, as well as a growing imbalance between container demand and available capacity. To make things worse, businesses are already facing another spike in shipping and freight rates as peak season approaches.
Challenges keep piling on, and executives are warning that more port chaos is on the horizon as fears of fresh supply chain disruptions continue to rise. Ship operators are scrambling to add millions of new containers to address a severe capacity shortage, but the giant boxes are getting stuck on liners and at ports as the shipping industry moves into its busiest period.
- “Importers are now bringing in cargo just in case, not just in time, and it makes up for more boxes sitting at the port,” explained Gene Seroka, executive director of the Port of Los Angeles. Seroka noted that the port of LA will have to handle substantially more cargo in the coming weeks as Shanghai, the world’s biggest port, has opened after a two-month citywide closure to fight a virus outbreak.
- According to Simon Heaney, a supply chain researcher at Drewry, a maritime consultancy, there’s going to be a deluge of orders coming out of Shanghai and landing all at the same time in U.S. ports. Since the beginning of March, total dry bulk congestion levels at ports in mainland China have jumped around 40%, according to S&P Global Commodities at Sea.
- In a recent interview, Christian Roeloffs, the co-founder and CEO at Container xChange, highlighted that container prices have “skyrocketed” by up to 10-fold on U.S.-China routes in the past two years “owing to one disruption after the other”. “By the way, the first half of 2022 has gone, these disruptions will be faced by the industry well into the year 2023,” he alerted.
Roeloffs warned that the end of lockdowns in Shanghai could trigger “panic shipping” in the next few weeks, as the backlog of containers destined for the U.S. West keeps getting bigger and “everyone wants to be on time for the peak season and wants to make sure that the cargo reaches the West coast on time.”
Consequently, this could spark another round of price rises as companies rush to find vessel capacity to transport their products. New data collected by Xeneta shows that May saw the highest ever monthly increase in long-term contracted ocean freight rates. The unprecedented hike means that long-term rates are now 150.6% up year-on-year. In 2022 alone, costs have climbed by 55%.
The lack of reliability and the continuous deterioration in the accuracy of transit and arrival times in global container shipping means the sector is in the worst state it has been in for 50 years. There has been no improvement globally in the past year and looking forward our review is that you should not expect an unwinding and resolving of port congestion until 2023
Philip Damas, Drewry’s Managing Director.
All of these factors are setting the stage for another nightmarish period for shipping. Supply chains have been broken and have never had the chance to properly rebound from the bottlenecks that emerged over the past two years. Given this context of persistent deterioration and exhaustion, it’s understandable why most people in the industry can see that more turbulence is coming, and the next round of supply chain disruptions is going to be unlike anything we’ve ever witnessed. A lot more stress is ahead, and the American people will become increasingly frustrated as prices just keep getting higher and higher.
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