Shipping costs are skyrocketing because of the complex network of containers, ports and trucking companies that move goods around the globe. That’s troubling news for retailers and holiday shoppers.
The pandemic is now 18 months old. Companies are finding it harder to ship goods to the places they need.
Shoppers will likely face increased prices and fewer options this holiday season due to unresolved issues and the emergence new problems such as the Delta variant. As they approach the year-end, companies such as Adidas (ADDDF), Crocs(CROX), and Hasbro (HAS), are warning of potential disruptions.
Bob Biesterfeld (CEO of C.H.) stated that “the pressures on global supply chain have not decreased” and that they do not anticipate them to in the near future. Robinson, one the largest logistics companies in the world.
China’s latest problem is the Ningbo Zhoushan Port south-of Shanghai terminal has been closed since August 11, after a dock worker tested positive to Covid-19. Major international shipping lines including Maersk, Hapag-Lloyd, and CMA CGM have modified their schedules to avoid the port. This is in response to a dock worker testing positive for Covid-19.
Shipping companies expect that the global crunch will continue. This is causing a massive increase in the cost to move cargo, which could lead to an increase in consumer prices.
Rolf Habben Jansen, chief executive of Hapag-Lloyd, stated in a recent statement that “We expect the market situation to only improve in the first quarter 2022 at the earliest.”
According to Drewry Shipping data, the cost of shipping goods to North America from China has increased over the past few month, after a spike in the beginning of the year.
According to the company’s World Container Index, the average cost of shipping a 40-foot container via eight major East-West routes was $9,613, up 360% from one year ago.
The route from Shanghai to Rotterdam, Netherlands saw the largest price increase. A 40-foot container costing $13,698 soared 659%. Container shipping costs on routes between Shanghai and Los Angeles have also increased.
On an earnings call this month, Soren Skou (CEO of Maersk container shipping giant) stated that the current historically high freight rates were due to unmet demand. He added, “There’s simply too much capacity.”
Port congestion
Ningbo’s terminal will be shut down, adding to the bottlenecks caused by Yantian’s closure in June, 50 miles north of Hong Kong. Yantian was closed after a coronavirus infection among dock workers.
Although Yantian was partially reopened in a matter of days, it took almost a month for normal services to be restored, according to S&P Global Market Intelligence Pajiva. This was because congestion had spread to other ports.
This could spell trouble for retailers and consumers trying to replenish inventories ahead of the critical year-end holiday shopping season. S&P Global Panjiva stated in a research note that Ningbo’s closure is “very sensitive” as it could affect exports during peak season deliveries to the US and Europe, which usually arrive between September and November.
Drewry Shipping stated Friday that congestion at the ports of Shanghai and Hong Kong are “spiking” and spreading to other parts of Asia as well as North America and Europe, and “particularly the West coast” in the United States.
According to a Thursday report from the Marine Exchange of Southern California, 36 container ships are currently anchored near Los Angeles and Long Beach.
This is the highest number of container ships since February when 40 were waiting to enter. According to the Marine Exchange, an average anchor would have one or zero container vessels.
According to Biesterfeld, C.H., the congestion in California is spreading to “pretty much all ports in the [United States]”. Robinson. Robinson said that the chances of your vessel arriving on time are approximately 40%, compared to 80% last year.
The backlog at ports can have ripple effects on already jammed warehouses, stretched road and rail capacities, and will cause congestion in the other areas. Due to the stimulus-fueled demand from US consumers and an increase in manufacturing, logistics networks have been operating at their maximum capacity for several months. Truck driver shortages in the United States and the United Kingdom have only exacerbated supply disruptions.
Eric Oak, the supply chain analyst at S&P Global Panjiva, stated that US imports in March-May exceeded those in October 2020. This is typically the peak shipping season.
He said, “This means that logistics infrastructures have been running out for most of the summer.”
Ports are not the only ones under pressure. As companies look for alternative ways to transport their goods, air terminals are increasingly receiving large volumes of freight. Biesterfeld reports that there can be delays up to two weeks at some US airports, such as Chicago.
Recent traffic disruptions at Nanjing and Shanghai Pudong airports in China have been caused by efforts to control Covid-19.
Retailers prepare for the impact
Biesterfeld said that “Anything you name, it seems like there is a shortage somewhere,” “Retailers are having trouble replenishing inventory as fast they sell, let alone preparing for holiday demand.
According to S&P Global Panjiva analysis, supply chains were covered on almost two-thirds of the approximately 7,000 earnings calls worldwide in July. This is an increase from 59% last year.
Consumer goods producers are taking drastic steps to meet demand — such as changing where products are made and moving them by plane instead of the boat — but companies such as shoemaker Steve Madden (SHOO) say they’re already missing out on sales because they simply don’t have enough goods.
In an effort to reduce delivery times, half of the company’s women’s product has been moved to Mexico and Brazil.
“In terms of supply chain…we could talk about it all day. On an earnings call last month, CEO Edward Rosenfeld stated that there are many challenges around the world. Both in the US as well as China, there is congestion at ports. Factory covid outbreaks are common. It is difficult to get containers. “We could go on and forth.”
This is one of many major apparel brands that have been affected by factory closures in Vietnam in the last month. S&P Global Panjiva data shows that almost 40% of all goods imported to the United States by the sea in the twelve months to July were from Southeast Asia.
Adidas CEO Kasper Rosted stated that the company would not be able to meet the “strong demand for its products” in the second half due to the closures. However, Adidas has moved production to other regions.
On a recent earnings call, he stated that supply chain problems have led to “significant delays and increased logistics costs” as a result of our increased use of airfreight.
Crocs CEO Andrew Rees stated that the transit time from Asia to the majority of the company’s major markets is approximately twice what it was in the past. He stated that this has been true for some time and that he expects investors to accept it.
Hasbro, the company behind Monopoly and My Little Pony said that it will increase the number of ocean carriers to ensure product availability for the holiday season. It also plans to use more ports to speed up deliveries and source more products from multiple countries earlier.
The supply chain crisis is likely to lead to higher prices for consumers. Hasbro, for instance, is raising prices to offset rising freight costs and commodities costs. According to Deborah Thomas, chief financial officer, the company projects that its ocean freight costs will average 44% higher this year than last.
The delivery time may be extended and shoppers might need several gift ideas.
Biesterfeld stated, “As we have been anticipating for months,” that holiday shoppers will see empty shelves. Buy most of your gifts online before the deadline. Delivery can take up to six weeks.