The Covid pandemic has been ongoing for over two years now. Every importer has experienced that supply chains and shipping costs all around the world have been affected as a result. Life as we know it has drastically changed, and we are facing enormous challenges across all sectors of society. Being the backbone of global trade and economy, the shipping industry has a great role to play.
Shipping is a primary industry for almost all countries globally and serves as an integral part of the supply chain for most industries. During a pandemic like this, we are absolutely dependent on the shipping industry to transport food, medicine, and other necessities across borders. And the shipping industry is absolutely dependent on production output to secure cargoes. With lockdowns and closed factories, the coronavirus pandemic has truly put a strain on the shipping business.
Why is there now a container shortage in the shipping industry?
The shipping industry is very much based on circularity and the pandemic has caused huge disturbances in the global supply chain. One of the biggest challenges for the shipping industry is container shortage.
In the spring of 2020, many countries entered lockdown, and economic activities were restricted. This significantly reduced the number of port staff and slowed down cargo handling speed. At the same time, factories temporarily closed. To maintain freight and avoid economic losses, shipping lines quickly reduced the number of operating ships.
In the autumn of 2020, world economic activities started to recover. Countries resumed their production and export volumes increased, especially from China to North America and Europe. But shipping lines still operated with fewer ships (meaning lack of space) and the ports with less staff. This caused massive delays and container shortages, and as demand heavily exceeded supply, freight rates went through the roof.
Some countries were taking selective measures by opening their factories for production one week and closing them again the next. This irregular goods flow created huge problems with port congestion and shipping lines choosing not to enter certain ports due to the long waiting times.
Unprecedented shortage of Shipping Containers
Contrary to expectations, demand for container shipping has grown during the pandemic, bouncing back quickly from an initial slowdown.
“Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers,” the UNCTAD policy brief says.
Maritime trade flows further increased as some governments eased lockdowns and approved national stimulus packages, and businesses stocked up in anticipation of new waves of the pandemic.
“The increase in demand was stronger than expected and not met with a sufficient supply of shipping capacity,” the UNCTAD policy brief says, adding that the subsequent shortage of empty containers “is unprecedented.”
“Carriers, ports and shippers were all taken by surprise,” it says. “Empty boxes were left in places where they were not needed, and repositioning had not been planned for.”
The underlying causes are complex and include changing trade patterns and imbalances, capacity management by carriers at the beginning of the crisis and ongoing COVID-19-related delays in transport connection points, such as ports.
Covid creates surges in trade volumes and risks
Data from the Institute of Shipping showed global container throughput in the first months of 2021 exceeded pre-pandemic levels, increasing by 6.4% in January 2021 compared to January 2020. Changes in consumption and shopping patterns triggered by the pandemic, combined with an easing of lockdowns and government stimulus packages, has led to increased demand for manufactured consumer goods, typically moved in shipping containers.
Similarly, the dry bulk market has benefited from the recovery of commodity prices. Demand for agricultural materials, coal, iron ore and other metals has caused commodity prices to rise sharply, helping drive up transportation costs by
more than 50%. The average daily earnings of dry bulk carriers saw a more than threefold increase in the first three months of 2021 compared to the start of 2020, its highest value in 10 years.
However, the recovery is volatile and dependent on the success of vaccinations and the ongoing effects of the pandemic. Despite a recovery in the price of oil, seaborne oil shipments in 2020 ended the year lower – crude oil trade down 8% and oil product trade down 12% – while tanker revenues per day fell from a peak in April 2020 to their lowest level in over 20 years in January 2021.
Even the container market has had its ups and downs. Surges in demand combined with Covid-related delays at ports and shipping capacity management problems led to congestion at peak times. Having retrenched at the start of the pandemic, carriers, ports and shippers were all taken by surprise by the stronger than expected demand in the second half of 2020, which led to a shortage of empty containers in Asia.
“The current supply chain disarray in the container trade highlights the need for effective backhaul of empty containers,” says Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS. “As a result of trade imbalances shipping lines are faced with significant volumes of empty containers in the US and North Europe that need to be returned to Asian ports. When callings are canceled due to congestion this exasperates the shortage of available containers to load out bound cargoes.”
Other factors are likely to affect shipping capacity in the months ahead. In the dry bulk market, few ships were ordered in 2020 while the scrapping rate was twice as high as in 2019. Orders for new container ships picked up in the last quarter of 2020, following several years of deferred orders, although there is a lag of two to three years between the placement of vessel orders and delivery.
There are risks associated with volatile trade volumes, says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS: “Unpredictable, sudden sharp downturns and surges in demand are difficult to manage at the best of times, and can lead to capacity issues and supply chain disruption. In the early stage of Covid-19, many ships were taken out of service – either scrapped or in layup – and this has led to some supply constraints.”
The surge in demand for consumer goods has also been cited as a potential contributing factor in the recent rise in incidents of containers lost at sea. Stacking of containers on vessels is reported to be at very high levels in order to service this demand with concerns growing about whether containers are being safely secured on board.
Best ways to deal with Shipping during the current Pandemic Situation
1. Communication is key – talk regularly to your manufacturer(s) and customers
Contact your manufacturer/factory in China to keep posted on the production schedule and if production speed is slowing down. Update your logistics provider like Cnxtrans on the prognosis of your goods volumes and inform your customers about any possible delays.
2. Plan in advance – Get your manufacturers to produce your goods in advance to make allowances for longer shipping times
Because of the container shortages and pandemic related port and border disruptions, many shipments are taking longer than prior to the pandemic. For door to door sea freight shipping, whereas before the pandemic often only 25-30 days was required, they often now require anywhere between 40-50 days. Therefore, in anticipation of longer sea freight shipping times, be sure to plan production schedules with your manufacturer in advance to get them to produce your goods as early as possible in order to allow for longer shipping times.
3. Prepare for the future – buffer for peak season
You may also want to buffer for peak seasons such as Golden Week, Christmas, or Chinese New Year. Plan together with your manufacturer and ask your logistics provider for the cut off time for shipping before major holidays in China
4. Consider an alternative shipping method or route
Sometimes, choosing a multimodal transport service with slightly longer transit times pays off as the regular services with faster transit times may be fully booked. Ask your freight forwarder for the option of using an alternative shipping service or route. For example, currently railway freight shipping from China to Europe is taking longer than usual due to pandemic related border disruptions. Therefore, at this present time, it is actually faster to ship from China to European countries by sea freight rather than rail freight, contrary to the situation before the pandemic. During this time, it is therefore important to be flexible and consider alternative shipping methods from what you may have previously been accustomed to.
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