If you’re in the business of importing, exporting, sourcing, or anything else that requires you to use international shipping lines, then you might be a little stressed this holiday season.
If you’re in the import/export business, you’ve probably noticed shipping costs have been skyrocketing lately. The global shipping industry is under immense strain due to unprecedented demand, COVID-related disruptions, labour strikes, and equipment shortfalls.
Importers and exporters worldwide are already struggling with elevated costs and extensive delays, and consumers will inevitably end up footing the bill.
Australian sourcing agents and small to medium businesses(SMBs) are by no means immune; price hikes and shipping chaos are wreaking havoc on the peak holiday season trade. An industry associate told me he hadn’t seen anything this severe in over 18 years in the business—it’s been one heck of a bumpy ride.
In this Epic News post, we’ll examine what’s caused shipping costs to increase, how these elevated prices are affecting local Aussie businesses, and when we can expect the mess to blow over.
We’re getting a bit techie in this post. If you’re not a seasoned shipping pro, you might need to refer to the following terms.
1. Blank Sailing (Void Sailing): When the carrier cancels a shipment. Either the entire shipment gets cancelled, or the vessel skips a specific port.
2. FAK: Freight of All Kinds
3. Rolled: A rolled shipment is when the cargo hasn’t been loading into the vessel—it’s a massive headache for everyone involved.
4. SCFI: The Shanghai Containerized Freight Index evaluates the overall condition of international trade.
5. Spot Rates: The price a freight service provider quotes to a shipper to move their product
6. TEU: Twenty-Foot Equivalent Unit is a standard container size/type (FEU: 40-Foot Equivalent is the other main type)
You probably won’t be shocked to hear that the pandemic is the primary driver behind all this shipping chaos. Container shortages and port congestion first started to appear in February (2020) and have only intensified since then. Sadly, there still doesn’t appear to be much indication of things getting better any time soon.
Zsolt Katona, the Managing Director at Eastern Europe for Maersk, has said the pandemic created substantial shipping bottlenecks throughout Europe. One of the primary causes is the increased frequency and thoroughness of European port checks, which have slowed down the shipping process by causing congestion and disrupting inbound operations.
Furthermore, unloading disruptions throughout China have had a significant impact on global trade. The holdups have meant lengthy delays for hundreds of thousands of containers, creating ongoing frustration for both shippers and consumers. As COVID proliferated around the globe, other major ports put strict quarantine measures onto incoming vessels, which further exacerbated the issue.
This significant slowdown in unloading and turnaround time has resulted in an enormous backlog at international ports worldwide, including China. Consequently, major Chinese ports such as Lianyungang, Qingdao, Shanghai, and Ningbo are still experiencing severe container shortages, and many ships are being forced to depart without a full load.
In normal times, Western ports unload containers filled with consumer goods from China and then fill those same containers with locally produced commodities. Goods like coffee, meat, crops, and lumber are then shipped back to China, and the process repeats itself.
However, as there aren’t currently enough containers landing in these ports, there’s no space to ship these products for the return journey. As you can imagine, that’s putting exporters under immense stress, especially those who ship seasonal crops or perishable goods.
Unfortunately, carriers can’t just add more ships to increase capacity because a vast proportion of the global fleet is currently out of service. Thus, rollover rates continue to rise, and shipping disruptions appear to remain for the immediate future.
Various shipping industry sectors have already started the blame game. Most carriers claim the global container shortage is a direct result of a surge in demand. Meanwhile, forwarders are pointing the finger at carriers, who they say are pulling in handsome profits from the mayhem.
Some pundits believe carriers are conducting blank sailings to drive short term profits. Others say they’re sending their cargo and equipment to regions where they can earn the most profit (instead of where they’re needed most).
As these elevated costs and shipping delays hit the sea and air freight sectors (air freight is especially hard hit right now), shippers in the lucrative Europe-Asia route have started focusing their attention on rail.
Rail freight services experienced immense growth in 2020. During the first nine months of 2020, for example, China Railway Express reported an80% increase in freight train departures between China and Europe.
Shippers caught onto the trend, and it didn’t take long for rail services to reach capacity. As a result, many shippers started looking into road freight services instead. DHL reported a significant increase in demand for their truck freight services as it became a viable alternative to the heavily congested rail, air, and sea routes.
Unfortunately for Aussie importers, the China to Australia railway line hasn’t quite materialised yet. We’re stuck with sea and air freight congestion for the foreseeable future.
All this mayhem has seen global shipping costs soar, and the elevated expenses are having a tangible effect on the importer’s bottom line. Equipment shortages and port congestion have forced shippers to slap on numerous surcharges to cover increased operational costs. We’ve already seen whopping fees of up to $500 per TEU(December 2020).
Recent data from Refinitiv Eikon tells another sobering statistic. Since July 2020, there’s been a 42% increase in the cost of container shipping between China and America’s eastern seaboard. The cost peaked mid-November at an eye-watering US$4,750 per container—ouch!
Importers, exporters, manufacturers, and consumers are already suffering the ill effects in Australia.
Export figures have been quite promising despite the hectic year, but securing shipping on sea or air carriers is becoming increasingly challenging and expensive. On the whole, it’s bad news for shippers getting ready for the lucrative export season.
Strict passenger restrictions led to a sharp decline in departures and arrivals at our major airports. As a result, we’ve seen elevated airfreight costs, and many local perishable produce exporters have had to watch their products go to waste.
While getting products out of the country has been tough, it’s proving just as challenging to get them in. At Epic Sourcing, we’ve seen the effects first-hand as securing air and sea freight space is becoming increasingly difficult.
To add fuel to the fire, COVID lockdowns saw eCommerce skyrocket throughout 2020, and the supply chain has been buckling under the strain. Plus, the building industry is expecting price rises and has already experienced significant product shortages.
As for sea freight, carriers have already started applying significant surcharges at major Aussie ports. Some reports suggest fees of between US$200-300 per container (TEU) are being slapped on to cover the cost of congestion.
Port congestion, container shortages, and elevated costs could mean we’ll continue to experience consumer product shortages in Australia for the upcoming holiday season. Let’s just hope there’s enough Cranberry sauce to go round for Christmas lunch—or is that made here?
With the hectic holiday season fast approaching and the Lunar New Year coming up in February, there doesn’t appear to be any end insight. Unfortunately, the current container shortage looks likely to remain, and supply chains will continue to feel the squeeze.
The good news is the market is doing everything it can to adapt. Aussie ports are ramping up their operations by hiring new personnel, and air freight carriers like DHL are pumping up capacity. In China, the major ports are adding new containers to help stabilise the situation.
With all these extra hurdles to overcome, it’s now more important than ever to enlist an expert to streamline the sourcing process. At Epic Sourcing, we can help local Australian businesses navigate these murky waters in the following ways:
1. Planning ahead to secure realistic shipping timeframes with manufacturers and forwarders
2. Splitting products into smaller containers as the more cost-effective 40-foot options are currently too hard to come by.
3. Locking in booking and contracts early to safeguard high volume shipping.
4. Consider delaying shipments until a later date to secure a better rate.
As you can see, there’s not a whole lot of holiday cheer here. The pain at the ports looks set to continue into next year, but we’ll hopefully see some respite as the industry adapts to the new normal.
Despite the ongoing issues, importing products from China is still the most cost-effective way to operate a business in Australia. If you’d like help with any part of the process, drop me a line and we’ll organise a time for your first FREE consultation.
See you next time,
TK.
