We have written in previous posts about volatility this year in the logistics market adding to buyers’ delivery and import cost uncertainty.
At other times, we have also written about the decoupling of U.S.-China trade or supply chains.
Events in recent months, however, suggest the two combined are likely to continue to create significant cost and uncertainty for buyers through the balance of this year — and likely well into 2021.
Sign up today for Gunpowder, MetalMiner’s free, biweekly e-newsletter featuring news, analysis and more.
The U.S.-China trade relationship and rising import costs
Firstly, the aforementioned decoupling is just not happening.
A fair part of the current pressure on shipping space and costs is coming from increases in trade between Asia and the U.S.
The pandemic has spurred demand for Chinese-made goods from electricals like laptops and associated electronics to PPE equipment, including masks and gloves.
China now accounts for more than 85% of all U.S. imports in the category dominated by N-95 respirators, disposable and non-disposable face masks, surgical drapes and surgical towels, according to Forbes. The U.S.’s imports of those products have surged to multiples of previous years’ demand.
From disaster to boon
Secondly, the normal run-up to the Christmas period is hitting a brick wall.
Shipping lines are removing sailings. Initially, the measure constituted a coping mechanism during spring lockdowns. However, since then, as the success in raising freight rates became apparent, the measure became a blatant move to improve profitability.
The pandemic has evolved rapidly from being a disaster for the major shipping lines to becoming a boon.
The disruption has caused considerable challenges, including:
- Increased time to discharge and load vessels
- Prolonged truck turnaround times at ports
- Containers missing rail connections
- Reduced haulage availability, both at origin and destination
As a result, shippers and buyers have been faced with near-unprecedented challenges this year.
But, it has to be said, the shipping lines are having a good pandemic.
Profitability is soaring. Rates have surged to an eight-year peak, almost doubling from the start of 2020, Global Times reports.
Decoupling? Not so much
In July, the number of containers on the China-U.S. trade route surged by 24% on a monthly basis to 489,000 standardized containers. The number rose to 490,400 in August, a positive year-over-year growth for the first time this year, despite shipping lines reducing services, the Global Times advised.
Some ports are facing demurrage, quay rents and costs incurred as a result of congestion are not being waived by shipping lines. Despite the temptation to bid out to other brokers, importers should try to stick to tried and trusted logistics partners. Strong relationships often save more money in times of stress than a few dollars off a box rate.
The current pressure will pass. However, it could be into 2021 before the upward pressure on rates eases.
So much for a U.S.-China decoupling.
We’re offering timely emails with exclusive analyst commentary and some best practice advice – and you choose how often you receive it. Sign up here.