This year promises to segue from uncertain supply chain disruption into more predictable disruption. The unstoppable rise of shipping prices may cause that disruption. And it may dominate the news in 2021.
Last year Covid-19 dominated the disruption of supply chains– hands down. Although a second strain has surfaced and threatens to disrupt supply chains, rising shipping prices may replace Covid-19 as a dominant disruptor.
The container capacity shortage, a front-burner issue now, promises to be dilemma for the long-term. This post will look at how the industry got to this point. It will also examine what impacts you can expect, as this issue works its way to ultimate resolution. More important, it will explain what stakeholders are doing to mitigate the problem.
Global Shipping Rates Skyrocket Near Historic Highs
Container capacity shortage is a worldwide problem in the aftermath of Covid-19. Recall, Covid-19 resulted in massive declines in supply and demand, making forecasting all but impossible.
Blanket sailings reached record highs, cargo was rolled over, and shipping delays were the norm, not the exception.
As a result, today we have severe container shortages near record highs. And that negatively affects worldwide shipping rates. Since late 2020, rates have escalated almost fourfold from $1,400/TEU to over $4,000/TEU.
But that’s not the worst of it.
Carriers, primarily the big alliances have set these rates seemingly arbitrarily. They’ve broken existing contracts with much lower freight rates. And they’ve also added surcharges for various reasons, further causing shipping rates to spike.
It seems some of the Big Alliance, namely, 2M, THE Alliance, and The Ocean Alliance, are operating with a heavy hand. Shippers and forwarders are blaming them with taking advantage of the post-Covid environment.
Meanwhile, governments in the U.S., China, and Vietnam have stepped in to explore charges of anti-competitive behavior. At present, only the European Commission has refrained from entering the fray. But it appears the EC may soon join these other governments in digging into this mess.
In the U.S., shippers using the ports of New York, Los Angeles, and Long Beach are complaining about the severe lack of available container space. This issue is not restricted to the U.S – it’s a global problem.
Thailand, for example, is also suffering from the container capacity disconnect. According to The National Shipper’s Council in Thailand, compared to last year, Thailand has shortage of 1.5 million containers.
Thai authorities blame vessel delays, rollovers, and shipping cancellations. Moreover, Thai authorities estimate shipping will increase in 2021 by 3-5% after declining about 7% in 2020. That will further exacerbate the capacity shortage.
That suggests shipping prices will get worse before they get better.
Fighting Rising Skyrocketing Prices with Partnerships and Regulation
Carriers have the upper hand at the moment and are forcing shippers and forwarders into the spot market. Of course, the spot market has much higher rates. Unless and until governments step in to regulate this huge disparity in supply and demand of containers, rates will continue to escalate.
This makes partnerships between shippers and 3PLs even more important. Fighting to resolve or avoid these adverse events demands a collective approach. Today’s situation gives truth to the adage: “There’s strength in numbers”.
The New Normal seems to be shaping up into a harsher, more competitive environment. More precisely, it’s showing signs of imbalance in the markets alone that may lead to greater government intervention.
As already mentioned, the U.S. is looking into claims by shippers and forwarders. On the table are not just formal inquiries, but also legal action, such as court injunctions against the shipping alliances.
We’ve just entered the New Year, so we can’t draw any conclusions yet. That said, regulatory action may be in the offing, if the market can’t redress these apparent inequities soon enough. That means, liners, shippers, forwarders, etc., must address this issue collectively and share costs as well as benefits. A one-sided solution won’t prevail in the long-term.
Operating Nimbly in the New Normal
Supply chain disruption is nothing new. Yet many businesses won’t weather the storm when disruption hits. It doesn’t seem to matter whether disruptive events are predictable or not.
Whether shipping prices will be the great challenge they appear to be at the moment remains a question. What’s important is how you manage the disruption caused by escalating shipping prices.
So what’s your plan for managing and/or mitigating expected or unexpected disruptions in 2021?
One way to manage and/or mitigate supply chain disruptions is through contingency planning. But a plan is only as good as the use you make of it. To make a contingency plan work you need people – partners to be more exact.
That’s where American Global Logistics comes into the picture. We’re a 3PL that knows a thing or two about managing everything from speed bumps to major crises.
When you partner with us, you can rest assured we’ll provide you with industry competitive rates. We have the personnel, processes, and technologies to help you prevent, avoid, or mitigate surprises.
Contact us today, if you’re looking for a stable partner to help you navigate the choppy waters 2021 promises to bring.