The Global Shipping Crisis of 2021 and How to Handle It as a Business

By the end of 2021, the shipping crisis that cooked up over the year seems to be like a Gordian knot impossible to solve. Anyone has heard about the semiconductors shortage and unprecedented delay in delivery that disturbs the car production in all major factories across the globe. And this is just one example.

More and more industries are affected by the complicated crisis of the shipping sector and this is visible in the lack of certain goods and products and in price increases. How did this happen?

Source: Popsci

Keep reading to have the global shipping crisis explained. 

How did the world shipping crisis appear?

The premises of the crisis are considered the following:

• A whopping 90% of the world trade is shipped by sea, most of it in containers. 

• Just in time inventory policies have become the norm in the past years. Meaning companies keep just a small part of their inventory on spot to minimize costs and rely on timely deliveries from suppliers across the world.

• The shipping industry had low profits in the past decade and as a consequence the investments in new ships were insignificant. And in the shipping infrastructure alike. 

• Therefore, the global supply chain works at full capacity with little room for errors. If a problem appears in a part of the chain it will transfer forward, like in a domino game.

Over this already complicated situation a row of events came in cascade: 

Due to the Coronavirus pandemic, the factories closed their doors for some periods of time, depending on how heavily the virus hit. Lockdowns and closed economies led in the first half of 2020 to a shrink in global trade volume, canceled ocean shipments, canceled bookings, and transit challenges.

By mid-2020 the demand for imported goods in the U.S. started to climb aggressively and as such the shipping services. The container rates started to skyrocket. 

At the end of 2020, the rate of exports decreases constantly and some ocean carriers skip on agricultural exports. For example, they ship back to Asia empty in more cases. 

By mid-2021 U.S. imports hit all-time high levels, huge amounts of money are heading to China in exchange for items made there. West coast ports are overwhelmed, experience massive traffic jams, and record levels of cargo to unload. Plus, the demand for ocean cargo is outermost. Some experts in the industry name it “containergeddon” 

Following the supply chain, the blocks migrate inland, to container terminals, railroads, and trucks. 

Exporters encounter more and more problems concerning container bookings and access to containers, as shipping carriers are on a hunt for higher return imports. Transit times increase.

Ocean cargo companies report maximum profits while the service reliability hits the ground. The most important ocean carriers - public traded companies - reported in the first six months of 2021 profits of $23 billion in comparison with $1 billion in 2020.

Immediate consequences of the global shipping crisis of 2021

This complex context of the shipping industry compared with the existing capacities generates huge problems and disruptions on each segment of the chain. It leads inevitably to syncopes in supply, and finally to increased prices that the consumers will have to pay.

Some of the most striking consequences of the world shipping crises are:

Exploded shipping costs

Thanks to the exaggerated demand for cargo shipping and the shortage of the corresponding infrastructure, the prices have reached an all-time maximum. 

The Howe Robinson Containership Charter Index multiplied ten times in comparison with its last year value. And almost doubled the peak reached in 2005. This index reveals how much costs to charter an extra-large container ship. 

Howe Robinson Containership Index via Yahoo Finance

Freightos index also indicates record-high costs for shipping a standard container from China to the U.S. The median costs skyrocketed to $20,586 in September 2021, a doubled value compared to July 2021, and quadrupled compared to January 2021. 

A concrete example shows that a cargo retailer chartered a cargo ship in September for the amount of $80,000 daily for a year, while last year the same cargo cost was somewhere between $10,000 and $15,000.

These exorbitant high freight rates are caused by unsatisfied demand and a lack of shipping capacity.

That’s an alluring cost increase just for a fraction of the supply chain that will be included in the final price the consumer will have to pay. 

Congested ports

Some major Asian ports temporarily shut down because of virus infections, think Ningbo or Yantian, move the blockage towards other neighboring ports. And from there to their counterparts in the U.S. and Europe.

In September, a record number of 88 ships were lined up to enter the Los Angeles port. An unprecedented situation, taking into consideration that in normal times there are no ships at anchor.  

Container shipping crisis

The pandemics impacted the shipping containers availability where they are needed. At this very moment, Asia is facing a strong container shortage, and also Europe.

Containers are piled up in depots, cargo ports, and ocean vessels, particularly on the transpacific routes. The increase of goods demand in the western world had as a consequence that most containers were headed towards these regions and did not return in Asia in due time. 

Plus, the workforce shortage in truck lines, cargo depots, and ports, contributes heavily to the container pile up in North America. For example, currently, there is a 40% imbalance, meaning for 100 containers that arrive in North America, 60 remain and continue to add up and only 40 go back. 

Moreover, the production of new containers is at low levels and doesn’t keep up with old containers’ scrapping. 

Source: Hillebrand 

Multiplied transit times

Shipping operations have become more and more difficult. As with the pandemics protocols, each country has its own set of rules and a shipping company has to deal with hundreds of such rules. 

As all these would have not been enough, the overload of containers in ports cannot be solved in a timely manner because of a workforce shortage. The lack of truck drivers and dockworkers adds up to the times the merchandise spends on its way to the buyer. 

The CEO of Crocs, Andrew Rees, says the transit times from Asia are almost double compared to their historic average and there are no expectations for improvements. 

In a word supply chains are crippled. It’s not just one or a couple of aspects of the supply chain that experience troubles. All major elements of the transport chain are disrupted, from containers to ports, shipping lines, rails, trucks, and warehouses. To solve this complicated situation most probably an overall rethink and remake of the whole system is needed. 

How can businesses that need shipping handle this situation?

As outlined above this is a systemic crisis and problems may appear on each segment of the supplier chain. 

Here are some measures you can take to ensure the availability of inventory in due time:

• Plan in advance your necessary of imported goods, several months in advance if possible.

• Source products in several countries and source well in advance. Find suitable suppliers closer to your region. If you need help, search for a trusted, and experienced sourcing partner to give you a hand and smoothen the process.

• Consider working with multiple ocean carriers and multiple ports to expedite the merchandise, to have greater chances of receiving the inventory you need. 

• Book shipping containers in advance, at least several weeks, insert buffer days, and take all the measures to avoid your containers being rolled. Verify that your shipping documents are correct and respect the rules (for example: declare accurately the goods you want to ship and their exact weight, the number of packages, etc.). Put in place a sailing schedule that’s flexible particularly when shipping in high season. 

• Choose reliable and reputed freight forwarders. Share your shipping schedule with them and all the partners implicated in the transport process.

• Try to avoid transshipment routes with multiple intermediary destinations if you get the chance.

• Prepare for heavily increased ocean freight costs. Some companies expect to have this year four times higher shipping expenses than last year. Plus, you may need to adjust the final price of the products you sell.

Will all this trouble and congestion continue next year? Yes, the probability is high. Industry experts say that large investments are needed to expand capacities of various parts of the supply chain, roads, ports, warehouses, railways, among others. And the implication of local authorities is required.