Will prolonged congestion change global trade patterns?

A jam is not just a point anymore

Rarely in any other year has the container shipping business become as “dramatic” as this year: From the story of a giant container ship getting stuck, blocking the Suez Canal, to record-breaking shipping prices, then cargo. a long line of ships outside the port, or a long period of downtime due to Covid-19…

The average shipping cost for a regular container ship (equivalent to 40 feet) has exceeded $10,000, more than four times what it was a year ago. The spot price to ship a similar container from Shanghai to New York in 2019 was about $2,500, now it’s nearly $15,000. Even if you book late, the price can be up to 20,000 USD.

To cope with the current situation, many businesses have been forced to choose an equally expensive direction. Peloton – one of the leading manufacturers of exercise equipment, has switched to using air transport. But the cost is equally high, twice as much as in January 2020. This is because capacity is limited as most are international flights.

Home Depot and Walmart, two US retailers, also have to choose to charter planes for package transportation. However, this also leads to pressure if you accidentally choose an unsatisfactory aircraft. This past July, a cargo plane was forced to return to port because it was transporting containers that are normally only used to transporting coal or iron ore.

Ships, planes or trucks can only transport so much, especially when the trips are all halfway around the world. Container ships have traditionally carried about a quarter of globally traded goods by volume, and three out of five by value. Currently, businesses do not have many options. One is to pay and accept slow delivery at the ports, or not to export or import anything.

Worldwide, there are about 8 million TEUs of cargo waiting at ports, up 10% from last year. At the end of August, more than 40 container ships were still moored off the coast of Los Angeles and Long Beach.

Eleanor Hadland, an expert at Drewry, a transportation consulting firm, said these places are similar to container parking, mainly to avoid congestion. “The pinch point is now not just a point, it’s an entire chain.”

For many years in a row, container shipping has maintained supply chain operations, especially when globalization is increasingly explosive. With shelves stocked with products from all over the world delivered on time, in the hands of every customer, this field hardly gets too much attention. “Shipping is so cheap that it doesn’t matter much,” said David Kerstens, Vice President of Jefferies Bank.

But now, when the problems are piling up, no one thinks containers go with the phrase “cheap” anymore. Experts also no longer expect the situation to get better in the last few months of the year.

Next year’s Lunar New Year, can the situation return to normal?

Such rapidly changing trends could even hasten the reshaping of global trade. Above all, shipping is stressful because in this industry, the period from boom to bankruptcy is often considered to be extremely short. The industry has become more cautious than ever in 2019, as productivity levels and order numbers both come under control, said Stephen Gordon of Clarksons, a shipping company.

But then Covid-19 appeared. In anticipation of a drop in trade, shipping lines have closed about 11% of the world’s fleet. When trading stops, interest rates start to rise again. And before measures to stimulate spending, Americans gradually returned to shopping.

In the first seven months of 2021, freight volumes transported between Asia and North America have increased 27% from pre-pandemic levels. Port throughput in the US in the second quarter of 2021 was 20% higher than in 2019. According to Mr. Eytan Buchman of Freightos – an online information provider on operating the international freight market, when When a system is pushed to the limit, a cascading effect occurs.

Empty containers are not in place. Congestion made a series of trains unable to move. But this past July, about 15 million containers were shipped. This number is more than before the pandemic period. However, the average transit time for sea freight has increased from 41 days to 70 days.

Some experts believe that after the Lunar New Year in February next year, which is usually the low season, the situation could return to normal. Mr. Peter Sand of BIMCO added, it can take up to 1 year to recover from the incident. As for Lars Jensen of Vespucci Maritime, asserted that, if calculated at the regional scale, in 2015, the strike of dock workers on the west coast of the US also caused similar disruption.

On the demand side, this depends largely on whether US consumers continue to spend big. Oxford Economics points out that, although retail sales fell in July, they were still 18% above pre-pandemic levels.

Even if American consumer demand declines, companies will save huge sums of money by replenishing supplies from the shopping frenzy and preparing for the end-of-year Christmas season. And there are signs that demand in Europe is picking up.

Will appear nearshoring wave?

Mr. Skou, CEO of Maersk emphasized, in the long term, the nature of the industry will still be “cyclical industry”, but with interest rates normalizing at a higher level. High shipping costs will affect each type of goods differently. If a person wants to buy cheap and bulky imported goods such as garden furniture, they will

However, reliability issues can influence company decisions. “The concept of ‘just in time’ has the potential to become ‘just in case’, as companies are trying to get out of a supply bottleneck by hoarding more inventory than before. epidemic.

According to Mr. Skou, to date, there is hardly any evidence of  nearshoring  (companies moving production facilities closer to home markets because of fuel, transportation and labor costs) get a raise). The effects of trade tensions and COVID-19-related “disruptions” could cause trade patterns to shift away from China.

Some Chinese companies and their partners are moving production to low-cost countries, in order to diversify supply chains and overcome trade barriers.

Ocean carriers are also preparing for a more commercialized area. Orders for ships from 13,000-15,000 TEUs were packed. Especially, earlier this year, Vietnam put into operation the nation’s largest deep-water port to receive generations of super-heavy ships.

In fact, for complex products, it is difficult to find a new manufacturer. Building a new supply chain is also very expensive. But if costs continue to rise, and reliability declines, businesses may have to consider  nearshoring.

Even the carriers admit that customers are fed up with rising rates and reduced reliability. Thus, there will be only one option left, which is to relocate production plants.

T&G International Joint Stock Company

Address: 352 Hue Street, Le Dai Hanh Ward, Hai Ba Trung District, Hanoi

Hotline: 0345786803

Email: hrm@tginterjsc.com

Website: http://tginternationaljsc.com