Disruption of global supply chains is getting worse 1:09
London (CNN Business) -
The 30,000 aluminum cans were to appear in a 20-foot container in July.
Months later, they still haven't arrived and SJ Hunt, co-founder of Lavolio, a London patisserie, is starting to panic.
The custom-made boxes, which Lavolio packs with fruit, nut and jelly-filled chocolates, are a key part of the brand, and Hunt paid a lot of money to make sure they would get from the manufacturer in East Asia to a port in Suffolk, England.
Renting a container for this route typically costs Hunt and his partner Lavinia Davolio between $ 1,500 and $ 2,000.
This time they had to fork out more than $ 10,000, a considerable sum for something that has not arrived.
"In short, it has been an unprecedented nightmare for us," says Hunt.
After 18 months of the COVID-19 pandemic, global shipping remains in crisis, with delays looming over the peak period for Christmas shopping.
Just take a look at the steel container market and it is clear that a return to normalcy will not happen anytime soon.
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Before the coronavirus, companies could rent a humble 6 or 12 meter box with relative ease, allowing them to move goods cheaply.
The containers have a useful life of about 15 years before being recycled into low-cost storage or construction solutions.
But containers are still scattered across Europe and North America, while supply chain delays mean even more are needed to fulfill orders.
Demand for goods, meanwhile, has skyrocketed, giving the network of ships, containers and trucks that deliver merchandise around the world little time to catch up.
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As a result, containers have become incredibly scarce and extremely expensive. A year ago, companies paid about $ 1,920 to reserve a 12-meter steel container on a standard route between China and Europe, according to data from Drewry, a maritime research consultancy. Now, companies spend more than $ 14,000, an increase of more than 600%. Meanwhile, the cost of buying a container has doubled.
Companies around the world are struggling to cope with this situation.
Furniture giant Ikea has bought its own shipping containers to try to ease some logistical headaches.
But that's not an option for a small candlemaker like Lavolio, which is rethinking its expansion plans and may have to raise prices, a sign of the broader damage caused by supply chain problems that are not going away. to dissapear.
Containers are seen being transported in Ningbo-Zhoushan port on August 15, 2021 in China.
Credits: Suo Xianglu / VCG via Getty Images
The container disaster
For months now, global supply chains have been under great pressure, causing shortages of products, from computer chips to McDonald's shakes.
Container boxes have played a key role in the chaos.
When the pandemic hit, the major shipping companies canceled dozens of shipments.
That meant that the empty boxes were not collected before the export sector of
China will begin to recover, and global demand for consumer products such as clothing and electronics will skyrocket.
The excess of empty containers has persisted as coronavirus restrictions continue to hamper operations at ports and warehouses, and while transportation costs continue to rise.
"Do we see more empty containers in ports? Yes," said Emile Hoogsteden, commercial vice president for the Port of Rotterdam in the Netherlands, Europe's largest port.
Rotterdam has had to create an extra storage facility for the containers as "a temporary solution".
One of the sticking points is that much of the cargo going from Europe to Asia is low-value materials such as waste paper and scrap, Hoogsteden said.
As shipping prices have risen, those trips are no longer worth it, leaving the boxes stranded.
Shipping containers and cranes at the dock in the port of Rotterdam, the Netherlands on July 29, 2021. Credit: Peter Boer / Bloomberg via Getty Images
Another problem is that the containers in circulation are retained for long periods.
That means more boxes are needed to carry out shipments and avoid further delays.
"If you look at the use of containers, we need many more boxes to move the same amount of cargo, as we recover them, on average, 15% to 20% later than normal," said Rolf Habben Jansen , CEO of Hapag-Lloyd, one of the world's largest container shipping companies, in a call with analysts last month.
Konstantin Krebs, Managing Partner of Capstan Capital, an investment banking firm that works with investors in the container industry and container shipping, said delays at ports make ships take up to four times longer to dock. and unload the goods.
"These ships are now sitting there for seven or eight days with all the containers in them," he said.
"That takes a lot of containers out of the market."
Working through bottlenecks has been a priority, but long wait times persist, thanks in part to the sheer volume of goods that have to make their way through a jammed system.
World merchandise trade is 5% higher than before the pandemic, according to the Netherlands Office for Economic Policy Analysis, and China just set a new trade record last month.
Increased costs
The physical shortage of containers is one reason the cost of buying or reserving a container has skyrocketed.
"We have record rates, especially in the spot market," says John Fossey, head of container leasing and equipment research at Drewry, referring to booking travel just before the ocean carriers depart.
But it is not the only contributing factor.
Fossey also noted that container-making companies, most of which are based in China, have had to cope with rising raw material costs.
Shipping boxes are largely made from a special type of steel that resists corrosion, and it has become considerably more expensive, as have materials for its back, such as plywood and bamboo, he said.
The cost of paying workers has also risen.
"This is a combination of raw material costs, increased labor costs and a very strong balance between supply and demand," said Fossey.
For financiers investing in ocean containers, which offer strong and stable returns and are a very popular alternative asset, the market environment is favorable.
Higher up-front costs are offset by leasing agreements, while those who sell containers can reap higher profits.
"The market is clearly attractive at the moment," says Dirk Baldeweg, managing director of Buss Capital, a container investment group based in Hamburg, Germany.
He noted that since it now costs more to obtain containers, leasing companies are asking shippers to sign longer contracts.
This could attract a new class of investors looking for steady income, as interest rates remain at record lows.
However, for those looking to rent containers on the short term, the situation is a huge headache.
Even the cost of buying containers on the secondary market for storage or commercial space has skyrocketed.
Sanjay Aggarwal, co-founder of Spice Kitchen, a spice and tea company based in Liverpool, England, said he paid triple what he would normally be charged for the empty shipping containers he uses to store produce nearby.
That, in addition to paying triple the normal fee to ship cans of spices from India.
"We have thousands of pounds that we are not going to get back, and that is sadly due to those shipping costs," Aggarwal said.
Disruption of global supply chains is getting worse 1:09
No end in sight
Container industry experts are not sure when prices will decline.
But they agree on one thing: the situation is not going to be resolved anytime soon.
"All that [container] turnover is very specifically calculated," says Osmo Lahtinen, CEO of OV Lahtinen, a container supplier based in Finland.
"When that breaks once, it's really hard to get back to normal afterward."
Fossey believes that the Chinese New Year, in February 2022, could provide a respite, as it will ease the pace of exports by closing factories.
But considering how stuck the system is, and how much people keep buying, that's far from a fact.
"This is a pandemic-induced shopping spree ... like we've never seen before," said Gene Seroka, CEO of the Port of Los Angeles, the largest gateway to commerce in North America.
While this is positive for the global economy, it could mean that supply chain problems persist until 2023, he continued.
That means more pressure on companies like Lavolio and Spice Kitchen, which are now forced to weigh whether they should raise prices for their customers to help offset their complications.
"We're going to have to rethink things, because we can't absorb these costs more than once," said Lavolio's Hunt.
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