Over the past six months we have heard several of our clients who run export-import dependent businesses in India complain that the movement of global freight has been disrupted by Covid-19 and why it is making it difficult for them to get key inputs. Ironically, as the post-Covid economic recovery gathers steam, this problem is worsening. The NYT has published an interesting piece explaining why this is.
The first challenge appears to be that demand for containing for shipping stuff from Asia to America is outstripping supply: “The virus has thrown off the choreography of moving cargo from one continent to another.
At the center of the storm is the shipping container, the workhorse of globalization.
Americans stuck in their homes have set off a surge of orders from factories in China, much of it carried across the Pacific in containers — the metal boxes that move goods in towering stacks atop enormous vessels. As households in the United States have filled bedrooms with office furniture and basements with treadmills, the demand for shipping has outstripped the availability of containers in Asia, yielding shortages there just as the boxes pile up at U.S. ports.”
The second challenge seems to be the shortage of dockworkers the world over (most likely due to Covid-19 linked restrictions/fears): “…at ports where ships do call, bearing goods to unload, they are frequently stuck for days in floating traffic jams. The pandemic and its restrictions have limited the availability of dockworkers and truck drivers, causing delays in handling cargo from Southern California to Singapore. Every container that cannot be unloaded in one place is a container that cannot be loaded somewhere else.
“I’ve never seen anything like this,” said Lars Mikael Jensen, head of Global Ocean Network at A.P. Moller-Maersk, the world’s largest shipping company. “All the links in the supply chain are stretched. The ships, the trucks, the warehouses.””
The third challenge seems to be that this is a non-linear problem where the second and third order effects are complex, manifold and thus hard to anticipate: “Economies around the globe are absorbing the ripple effects of the disruption on the seas. Higher costs for transporting U.S. grain and soybeans across the Pacific threaten to increase food prices in Asia….
Rice exporters in Thailand, Vietnam and Cambodia are forgoing some shipments to North America because of the impossibility of securing containers…
Unlike the financial crisis, when the economic recovery took years to gather force, Chinese factories came roaring back in the second half of 2020, yielding robust demand for shipping.
As shipping companies deployed every vessel that could float, they concentrated on routes with the greatest demand — especially China to North America….
Viewed broadly, the volume of global trade dipped by only 1% in 2020 compared with the previous year. But that doesn’t reflect how the year unfolded — with a plunge of more than 12% in April and May, followed by an equally dramatic reversal. The system could not adjust, leaving containers in the wrong places, and pushing shipping prices to extraordinary heights.
Peter Baum’s company in New York, Baum-Essex, uses factories in China and Southeast Asia to make umbrellas for Costco, cotton bags for Walmart and ceramics for Bed Bath & Beyond. Six months ago, he was paying about $2,500 to ship a 40-foot container to California.
“We just paid $67,000,” he said. “This is the highest freight rate that I have seen in 45 years in the business.””
The first challenge appears to be that demand for containing for shipping stuff from Asia to America is outstripping supply: “The virus has thrown off the choreography of moving cargo from one continent to another.
At the center of the storm is the shipping container, the workhorse of globalization.
Americans stuck in their homes have set off a surge of orders from factories in China, much of it carried across the Pacific in containers — the metal boxes that move goods in towering stacks atop enormous vessels. As households in the United States have filled bedrooms with office furniture and basements with treadmills, the demand for shipping has outstripped the availability of containers in Asia, yielding shortages there just as the boxes pile up at U.S. ports.”
The second challenge seems to be the shortage of dockworkers the world over (most likely due to Covid-19 linked restrictions/fears): “…at ports where ships do call, bearing goods to unload, they are frequently stuck for days in floating traffic jams. The pandemic and its restrictions have limited the availability of dockworkers and truck drivers, causing delays in handling cargo from Southern California to Singapore. Every container that cannot be unloaded in one place is a container that cannot be loaded somewhere else.
“I’ve never seen anything like this,” said Lars Mikael Jensen, head of Global Ocean Network at A.P. Moller-Maersk, the world’s largest shipping company. “All the links in the supply chain are stretched. The ships, the trucks, the warehouses.””
The third challenge seems to be that this is a non-linear problem where the second and third order effects are complex, manifold and thus hard to anticipate: “Economies around the globe are absorbing the ripple effects of the disruption on the seas. Higher costs for transporting U.S. grain and soybeans across the Pacific threaten to increase food prices in Asia….
Rice exporters in Thailand, Vietnam and Cambodia are forgoing some shipments to North America because of the impossibility of securing containers…
Unlike the financial crisis, when the economic recovery took years to gather force, Chinese factories came roaring back in the second half of 2020, yielding robust demand for shipping.
As shipping companies deployed every vessel that could float, they concentrated on routes with the greatest demand — especially China to North America….
Viewed broadly, the volume of global trade dipped by only 1% in 2020 compared with the previous year. But that doesn’t reflect how the year unfolded — with a plunge of more than 12% in April and May, followed by an equally dramatic reversal. The system could not adjust, leaving containers in the wrong places, and pushing shipping prices to extraordinary heights.
Peter Baum’s company in New York, Baum-Essex, uses factories in China and Southeast Asia to make umbrellas for Costco, cotton bags for Walmart and ceramics for Bed Bath & Beyond. Six months ago, he was paying about $2,500 to ship a 40-foot container to California.
“We just paid $67,000,” he said. “This is the highest freight rate that I have seen in 45 years in the business.””
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