Shipping Container Shortage & Soaring Freight Rates Are Severely Aggravating Supply Chain Crisis

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Last week’s events were another major blow for global supply chains and now industry experts are warning businesses and consumers more delivery delays, shortages, and even more acute price hikes are coming. A series of disasters, including devastating floods in China and Europe, could result in empty grocery shelves, out-of-stock products, and prolonged shipping delays, exacerbating the already strained global supply chains. Western Europe and China’s Henan province – key transportation centers and home to several major businesses – are struggling to resume operations as the disasters have severely damaged railways used for the delivery of goods and raw materials in both regions. Companies in the supply chain industry reported that “water rushed into industrial areas extensively damaging facilities”.
In an interview with CNBC, Pawan Joshi, the executive vice president of supply chain software firm E2open, said that “Black Friday and the holiday season, for which products and raw materials are being staged, will face the brunt of the impact,” he added that “consumer electronics, dorm room furniture, clothing, and appliances will all continue to be in short supply as back-to-school shopping starts up, and will trickle into the peak holiday shopping season”. Delays from the distribution of raw materials necessary to produce goods will have a ripple effect and disrupt supply chains “for weeks and months,” Joshi highlighted. “Come Black Friday, we can likely expect to see prices rise for all sorts of goods such as consumer electronics, furniture, apparel, and appliances,” he told CNBC.
Amongst the hardest hit industries by the brutal floods is auto. Many of the biggest automakers in the globe along with their suppliers are based in regions that were critically affected by the disaster. Now that automakers were finally being able to start ramping up production, the disruption will likely hammer car manufacturing once again, with shipping delays expected to stall operations at several plants for months. The global shipping crisis is worsening at a quite alarming pace. Even Apple CEO Tim Cook stressed that freight costs are way too high. In a year, freight rates skyrocketed by nearly 500%, and they continue to reach unprecedented levels with each passing month. If billionaires are complaining about the staggering surge, for small business owners is has become simply impossible to find affordable vessel space to send their products overseas.
The main factor pushing shipping prices to sky-highs is the container crisis that started in September 2020. Almost one year later, the situation has only got worse, and the main problem behind the critical shortage of containers is the extraordinary surge in demand for consumer goods coming from China. Chinese companies are so eager to refill containers that shipping lines are sending them back to Asian ports rather than waiting for them to be restocked with U.S. products such as crops. That is aggravating the container shortage, and resulting in soaring transportation costs.
Shipping industry experts are estimating that only half of the normal container supply will be available for U.S. businesses to send their products in the September-October period when new crops are supposed to be moving to overseas markets. But several farmers and ranchers are already aware that they will remain unable to send their products across the ocean, and some of them are being forced to make some extremely painful choices. “We’ve already begun the process of laying off half of our staff,” one California farmer said, noting that shipping lines are canceling traditional container routes to focus on getting empty containers back to China.
The container shortage issue is particularly concerning for the U.S. agricultural industry, which is comprised of many small farmers that supply niche products to buyers who don’t want to buy bulk commodities. For instance, 40 percent of California’s nuts and 35 percent of oat crops travel by container to markets around the world. But now, that number is expected to sharply drop due to the lack of available containers.
According to Jordan Atkins, the vice-president of WTC Group, a transloading company, there is no end in sight to the container crisis. “We’re seeing the demand that is causing these imbalances continue for at least the next six to eight months,” he said.
Already, shipping delays are having serious impacts across several U.S. industries as companies try to recover amid the reopening. Unfortunately, inflated prices are here to stay and what we’re seeing right now is just the beginning. As supply chain woes get dramatically aggravated and imbalances between supply and demand get even more acute, the worst is yet to come, and in the coming months, we will all be seeing how ravaging the inflation crisis will turn out to be.

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Epic Economist

Epic Economist

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