Gray hairs and bottlenecks

Estimated reading time: 6-7 minutes

The EU’s health ministers will have gained more a few gray hairs as the vaccine shortage fallout got worse in recent weeks. Shippers, freight forwarders and logistics managers have most likely given up counting the gray hairs caused by a very different shortage. For months now, the ubiquitous box that carries most shipborne trade has been in short supply – with far-reaching consequences for supply chains, freight rates and, ultimately, consumer prices. 

Supply-chain bottlenecks

In 2020, “the first quarter was good, the second unbelievably weak and since the third quarter, we’ve seen demand rising. People are buying more because they can’t go on holiday or dine in a restaurant,” said Hapag Lloyd boss Rolf Habben Jansen in a recent interview with the German media company ntv. From the second half of 2020, the demand for consumer goods mostly manufactured in Asia and shipped in containers on east-west trades has boomed – DIY devices, home trainers, consumer electronics, furniture and all the other goods that make lockdown life less unpleasant. This has resulted in serious supply-chain bottlenecks due to a shortage of containers and reduced capacities on Asia-Europe routes. Following the stabilization of China-US freight rates since October 2020, many containers have been switched to Pacific trades. Many European consumers wanting to buy a new smartphone or electronic device in December had to wait till the new year. Manufacturers reacted to supply-chain bottlenecks by running down their warehouse stocks. But then even they ran out, as the global shortage of automotive chips this January proved. Carmakers like VW and Toyota were forced to pause their production. 

Price hikes in freight rates

During the slump caused by the first pandemic lockdown, significant numbers of empties were left stranded in Europe as containers were not needed in Asia. In a Financial Times article Lars Jensen from market analyst Seaintelligence describes how customers are now “fighting over a scarce resource”. Consequently, container prices have shot up. The Freightos Baltic Index (FBI), one measure of container prices, has risen to over $4,000 from $1,200-$1,600 in 2019. Transporting a 40’ container from Asia to Northern Europe now costs over four times what it did eight weeks ago – $9,000 instead of $2,000. Freight forwarder Edge Worldwide Logistics has even reported prices of up to $12,000 per container. The UK trade association for manufacturers of small and large domestic appliances claims the rise in freight rates is, in some cases, exceeding the profit margin from selling the goods. At some stage, consumer prices will go up, as always happens when demand outstrips supply.

No end of mismatch in sight

A temporary easing of supply-chain bottlenecks is expected over the Chinese New Year festivities – around February 12 – when manufacturing output traditionally falls in China and other Asian countries. But most market experts believe the mismatch between supply and demand will actually get worse before it gets better. The President of the World Shipping Council, John Butler, highlights another serious bottleneck in global supply chains – seaports that currently cannot handle the “historically high volumes of goods” the demand boom is generating. John Butler does not expect demand pressure to ease until people again have the chance to spend money on services banned in the lockdowns. But who knows when that will happen? Pandemic prophecies have been shown to have a half-life of days or weeks.

Accurate ETA forecasts

blank

An accurate forecast of a container cargo’s ETA in a given port is all the more important in the light of today’s supply-chain bottlenecks and in-port handling issues. The advanced ocean freight visibility data provided by Ocean Insights’ Container Track & Trace (CTT) tool allows containers to be monitored in real time. As the only predictive POL-to-POD ETA tool on the market, CTT can lead to a radical reduction in demurrage and detention charges, improved supply chain resilience, and more effective risk mitigation. In today’s volatile ocean freight climate such visibility data is more valuable than ever – not least for increasingly gray-haired supply-chain stakeholders.