Global supply chains under pressure amid rising costs, delays

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supply chain chart

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When we first started reporting on global freight costs in Q4 last year, we expected that the pandemic bounce-back would probably be a relatively short-term effect, easing around the Chinese Lunar New Year. Around then, Chinese manufacturers closed down and the shipping industry had a chance to catch up on backlogs.

Unfortunately, in the meantime, the situation has not gotten better.

If anything, it has gotten worse.

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Supply chain woes

According to the Financial Times, the cost of shipping goods from China to Europe has more than quadrupled in the past eight weeks. Costs have hit record highs as a result of a shortage of empty containers disrupts global trade.

The post states the cost of shipping a 40-foot container from Asia to northern Europe has increased from about $2,000 in November to more than $9,000, quoting shippers and importers.

MetalMiner’s own research has found the worst increases are on the China to US West Coast and Northern Europe routes. Other origins, such as India, have doubled but not tripled since spring 2020, with the largest increase coming in the last 3-4 months.

The Chinese Lunar New Year closedowns barely happened this year. New COVID-19 outbreak containment measures in China encouraged Beijing to dissuade all but essential travel. As a result, a majority of workers in the cities were available to work over what would normally be a near two-week holiday period.

Product, therefore, continued to be delivered to the docks. Demand on shipping lines barely abated.

FreightWaves reported that last year ocean carriers cut 112 vessel departures at Chinese ports, or about 20% of capacity during the Chinese Lunar New Year period.

Through Monday, there were only 63 blank sailings this year. The primary reason for those was because of vessel rotation issues, not a decrease in demand.

Under pressure

Pressure on US ports is set to ramp up further, the National Retail Federation (NRF) says. NRF estimates container volumes at US ports in March will soar 41% from a year ago to 1.93 million twenty-foot equivalent units (TEUs), even as the ports capacity is reduced by a shortage of workers and dreadful port congestion.

The NRF went on to forecast container ports to set monthly import records through June, after setting a record of 22 million TEUs last year.

Consumers have skewed purchasing over the last year to consumables at home, many of which come from Asia. However, there is still huge pent-up spending power across the economy, as those remaining in employment have saved.

Congress’ new coronavirus stimulus package includes more unemployment benefits and $1,400 checks for median earners. The package is likely to spur another round of robust e-commerce purchases for goods in Q2/Q3.

Demand fell in the first half of last year but bounced back so strongly in the second half. As a result, some 5 million (TEUs) were pushed from the first half of the year into the second half. This caused chaos across the Asia-Pacific and Asia-European routes, despite these being the most lucrative for shipping lines and, therefore, a priority to serve.

Regional services within southeast Asia have fared even worse. Delays and cost increases are adding to manufacturers’ disruptions, as the supply chain has become disconnected.

Up in the air

Nor has airfreight proved a solution.

Minimal international passenger traffic has grounded many fleets around the world, cancelling flights that would also have carried a proportion of lighter air cargo. As a result, courier services in particular have been decimated. Anecdotal evidence gathered by MetalMiner suggests not a single courier delivery from those interviewed had arrived on time this year.

The pressure on cargo-only flights has, therefore, skyrocketed (no pun intended).

As a consequence, rates have risen dramatically. Cargo carrying capacity remains some 20% below 2019 levels. Traffic, however, is predicted to grow by double digits this year. Fixed annual rates are just not available, leaving shippers open to ever-rising costs and delays.

All this is feeding into inflationary pressures for metal consumers. Consumers had expected the recovery boom to ease by the spring. Freight costs are not expected to ease much this year. It will be the summer, at least, before the industry begins to get on top of the current debacle. Volumes will then start ramping up for the winter holiday season from the middle of the third quarter onwards.

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