Manufacturers, business owners and ordinary Americans have been bogged down in the supply chain quagmire for months now — a quagmire that appears to be intensifying as the holidays approach. For the shipping heavyweights, though, the current environment is like an all-you-can-eat buffet — with potential heartburn in the form of greater regulatory scrutiny and legal action. the allegations Price manipulation.
“I would argue that it is just a matter of supply and demand. Supply is maxed out at the moment, in terms of everything that can move containers leased or occupied,” said Willie Shih, a professor at Harvard Business School. Home Depot or Walmart rents so-called project cargo ships that don’t usually carry containers.”
“Business incentives to find creative solutions are massive. Matt Collier, Associate Economist at Moody’s Analytics, wrote in a recent research report: “Recent tales of major retailers chartering their cargo ships as well as rerouting goods to smaller, less crowded ports across the states The United States provides an example of this.” “The good news is that household balance sheets are in very good shape and consumers are sitting on a large amount of excess savings, which will help reduce the impact of higher costs on household purchasing power” – but the longer the crisis lasts, he said. Businesses and consumers will become less flexible.
The current environment is like an all you can eat buffet.
Historically, Patrick Donnelly, senior analyst at Third Bridge, said additional charges tend to be one-off events caused by short-term delays or mixing up. “Initially, there were seasonal surcharges but standard shipping rates,” he said. “We’ve never seen surcharges go this far.”
Donnelly said it cost between $1,500 and $3,000 to send a 40-foot shipping container from China to California. “Today, we’re looking at pricing about 10x… we are now in the $15,000 to $17,000 range,” he said, once the additional fees are added.
Donnelly expects shipping costs to remain at that high, not only despite the holidays, but likely through the first half of next year.
Danish container shipping giant AP Moller-Maersk A/S told investors in August that revenue rose more than 60 percent in the second quarter, raising expectations for the higher end of its $6.3 billion annual profit metric to $15.5 billion. Analysts say these staggering numbers are on par with the industry’s trajectory this year. Monitoring groups have called on regulators in the US and abroad to do something.
The Biden administration said earlier this month that it would begin 24/7 operations in the ports of Long Beach and Los Angeles, through which an estimated 40 percent of cargo ships carrying goods into the United States pass. Earlier this week, the agency that operates those ports announced that, from 1 November, it would charge cargo ships that occupy terminal space without unloading after a set number of days (the number of days varies depending on whether the cargo is in operation.) By road, by rail or by truck). Fees will start at $100 per container and increase by $100 per day — a potentially huge fine, because cargo ships can carry thousands of containers per container.
But analysts say there is no single clear solution to this maritime traffic congestion.
Donnelly said the roots of the current impasse go back to early 2020. “This started in March and April of last year at the start of the epidemic with a lot of canceled sailings coming in from China. When they were facing the initial surge, the ports were off.” We are still feeling the effects of those sails. Initial canceled to this day.”
When the first wave of the pandemic reached the United States, officials took swift and sweeping action to prevent an economic collapse, enacting an unprecedented series of monetary and fiscal policies that boosted the purchasing power of ordinary Americans despite widespread contraction in commercial and financial prices. social activity.
“What was not expected was that consumer demand remained relatively strong and e-commerce volumes exploded,” Donnelly said. “We have seen e-commerce continue to grow at an unprecedented pace. This adds to the huge demand for ocean freight.
In addition to the dearth of space on ships, there is also a lack of space for those ships to dock, especially when arriving on the California coast. “The real obstacle is the level of the port and how much congestion there is inside the ports,” Donnelly said.
“Last week, there were 78 or 79 ships waiting to get to Los Angeles and Long Beach,” Shih said. When ships wait, they either carry cargo or empty containers. This effectively removes capacity from the system,” he said, citing one estimate that about 13 percent of global capacity has been cut by these bottlenecks.
On the ground, trucking capacity remains an issue. With an increasing number of older workers choosing to drop out of the workforce rather than risk contracting Covid-19, the current shortage of truck drivers has been exacerbated by the relatively advanced age of fleet operators, while the shift from people buying goods in stores to ordering online and making them They deliver modular road transport logistics and create new pressure points.
“Not only did demand increase, but demand rebounded in a completely different way,” said Suresh Acharya, a professor at the University of Maryland’s Robert H. Smith School of Business. “Stores are increasingly becoming glorified showrooms,” he said. “It is very likely that our shopping behavior will continue into the future.”
Historically, shipping has been characterized by boom and bust cycles. Now, companies are working to “take profits while they can.”
Acharya added that the sudden shift to e-commerce affected the availability of containers as well as the amount of space available on ships. “What goes into the container, rather than being uniform things, is a mixture of things, which means you need more containers,” he said.
And while there has been a shortage of shipping containers themselves because the factories where they are made – also largely in China – have been affected by the Covid-related shutdown, so too, shipping conglomerates as well as companies that make containers have hesitated to rotate. In order to meet demand, if the shift in how people shop is just a temporary change.
Historically, the shipping business has been characterized by boom and bust cycles driven by rising demand resulting in a compensating increase in supply. With the tide turning in their favour, Xie said, shipping companies are taking profits while they can.
“Now, they are using this high demand to recover the cost of capital and try to make some money,” he said. “There was also consolidation between shipping lines,” he added, comparing the shrinkage of the container shipping market to the activity of consolidation that has reduced the number of US-based airlines – each causing prices to rise as competition falls.
“We are still in a period where we don’t fully understand whether this is an ‘epidemic exit’ or a long-term rule. I think it’s anyone’s guess,” Acharya said. “What the container companies are measuring, is this a pain in the near term or is this there to stay?”