The global shipping logjam is at risk of not being resolved by Christmas… next year. Such is the conclusion of internal projections from Mitsui OSK Lines, which has joined a growing chorus of shipping giants sounding the alarm on the status of global logistics networks.
The industry has weathered a series of shocks since COVID-19 emerged nearly two years ago. First came a collapse in global economic activity; that is now being followed up with a wave of resurgent demand as economic normalization proceeds across the world. Yet this normalization has been two-track, with consumers and producers operating under different epidemiological conditions. China, the world’s largest producer, remains vulnerable to lockdowns so long as it maintains a ‘zero-COVID’ policy, as evidenced this summer when the port at Ningbo was shut down for two weeks. Worker shortages up and down the logistical chain are also holding up shipments, whether it’s dock workers in US ports or transport drivers in the United Kingdom (a shortage so severe it has prompted emergency measures). And now the logjam is being further compounded on the demand side as purchasers are upping their orders in anticipation of not being able to procure timely shipping services in the future.
The logjam is further compounded by the lack of any overriding organizational or regulatory structure, government or otherwise: shipping companies have been forced to adapt internally to every new hurdle, giving rise to a tapestry of proprietary operations that fail to properly interact with the next leg of the logistical chain. One complicating trend is the tendency for major retailers to take matters into their own hands; for example, Costco has taken the step of chartering its own container ships through 2022. Mounting confusion and growing backlogs have led some companies to call for government intervention and/or mandated information-sharing at US ports, which have generally lagged behind global peers in their scheduling and management systems.
The backlog is now quite severe. Some 60 cargo ships have lined up for processing in ports in southern California, and 20 await docking at the port of Savannah; elsewhere, ports in Georgia, Houston, and New York have been processing goods in record volumes. Overall, 77% of the world’s 22 key ports reported above-average turnaround times according to a report from RBC Capital Markets. All the above ports are having to process ships carrying above-average cargo loads with below-average staffing levels working the docks.
With container space in short supply, per-unit shipping costs have spiked. The median container shipping cost from China to the west coast of the United States hit approx. $20,500 last month – nearly four times its January level. Container prices have been falling to close the month, hitting $8,000 in Shanghai on September 30 (it was $15,00 days previous), potentially on falling output from Chinese factories as rolling blackouts roil the northeast of the country.
Increased shipping costs have to be absorbed by retailers, who are suddenly paying anywhere from two- to six-times more than they normally would. Increasingly, these retailers are willing to pass these price increases onto the consumer, resulting in inflationary pressures overall. Moreover, the shipping glut comes amid ongoing semiconductor shortages that are affecting a wide variety of consumer products, ranging from smartphones to cars to computer equipment. The likely result will be shortages heading into the holiday season, with iPhone 13 serving as a prelude of what’s to come as some buyers are asked to wait weeks and even months for their phone to arrive.
The recent price dip in container prices hints that some relief may be on the horizon as we move out of the Christmas shopping season; however, as the above prediction from Mitsui OSK Lines affirms, global shipping in 2022 projects to be anything but business-as-usual.
