Rising container rates and storage fees have run amok. They may stabilize, but supply chains must first resolve several issues before rates can return to historical means.
Since the beginning of the year there was hope of a return to normal operations. But the unwinding of the pandemic has proven more challenging. That’s why we refer to the return to normal operations – in part – as the New Normal. It implies things won’t be the same.
Everyone is finding the pandemic stretched supply chains to their maximum capabilities. Global supply chains didn’t break, but they were severely tested.
Now, supply chains worldwide are coping and adapting. Resilience and agility are the industry’s
new watchwords. The present challenge facing businesses is how to manage the uncertainty and volatility that come with rising rates for containers and storage.
Before resolving the larger issue, we need to understand what’s driving container and storage prices higher.
This post reveals seven reasons container rates are running away uncontrollably.
#1: Port Congestion. Today we see congested ports worldwide. That’s due to the dramatic increase of cargo volume since the pandemic. Business Insider reported that the Port of Los Angeles, had 21 container ships backed-up waiting to dock for 3 weeks.
Another example of port congestion is at the Port of Long Beach. In January 2021, volume increased 21.9 percent from January 2020.
East coast ports are also experiencing the same situation. At the Port of Virginia, cargo volume increased 19.2 percent from last January. Also, cargo volume increased 21.7 percent from last January the Port of Georgia.
The amount of time it takes offload a ship is now at unprecedented levels. And the trend indicates rising volumes resulting in delays in off-loading not seen before.
Congestion contributes to delays further limiting container availability. And those delays result in increased storage, detention, and demurrage fees.
As long as congestion and container scarcity persist, container and storage prices will rise.
#2: Pandemic-induced Bottlenecks. A lot of today’s logistics issues stem from congestion caused by pent-up demand as discussed above. Here we’ll look at shortages in containers from pandemic-induced bottlenecks.
For example, the ongoing shipment of pandemic-related items continues to consume valuable capacity. That reduces container availability for other goods.
Yet as Covid cases decline in the U.S., meeting demand for capacity should improve. But now international shipments for the same items are increasing. So competition for containers will persist as pandemic-related cargo consumes cargo space needed for other goods.
On the surface it appears, meeting current demand requires more containers and more ships. But some make the case that it’s not a numbers issue. Rather the issue is about having ships and container in the right place at the right time.
In any case, this reflects a classic case of demand (for containers) outstripping supply. Hence, container prices and storage fees are increasing.
#3: Ever Given Blockage of Suez Canal. This is another cause of congestion. Recall in March 2021, the Ever Given ran aground blocking passage in the Suez Canal. This affected the flow of goods for one week from March 23 – March 29, 2021. That might not seem like a long time, but it had a major downstream ripple effect.
For example, the Ever Given’s grounding delayed the passage of 369 ships. That further contributed to global congestion. With 12 percent of global trade flowing though the Suez Canal, CNBC reports the impact could last at least 2 months.
In addition, many ship liners re-routed their ships around the Horn of Africa. This resulted in longer shipping times and more delays. That only exacerbated container shortages.
In short, the Ever Given’s grounding reduced container availability in two ways. First, it reduced availability by holding containers longer than planned. Second, it also limited the supply of containers as ships sailed around the Horn of Africa resulting in extended shipping times.
Those combined events further caused container shortages driving up prices.
#4: Weather. The weather is always a bugaboo. It’s always lurking, waiting to upend the best of well-laid plans. In addition to the other causes of rising prices, weather did not disappoint.
First, we had severe winter storms in the U.S. impacting operations in the South and the Mid-west. Texas was hit especially hard. Dallas-Ft. Worth Airport shutdown due to record sub-zero temperatures. So did airports at Houston, Austin, and San Antonio. In total, the shutdowns resulted in 2,603 flight cancellations.
Moving to India, on May 17, 2021, Cyclone Tauktae shutdown the Port of Pipavav. Fortunately, only limited damage to infrastructure occurred at the ports. However, the cyclone disrupted the port’s power supply and communications.
The Port of Pipavav was not planned to reopen until June 1, 2021. That shutdown will result in increased demurrage, detention, storage and fees.
These weather-related port shutdowns further limited container availability and delayed timely off-loading/loading, limiting container availability pushing prices higher.
#5: Uneven Port Management. This one should be straightforward. U.S. ports have different operating policies that negatively affect the seamless flow of cargo. That said, coordinating operations nationwide to achieve optimal flows is difficult, if not impossible. The same holds true for international ports.
As a result, flows into and out of ports suffer. For example, congestion at one port, say at LA/LB, can impact operations at domestic and international ports.
On the domestic front, delayed off-loading would result in delayed shipping inland to eventual customers. Likewise, as congestion bogs down operations at LA/LB, that may hamper the timely return of containers for outbound cargo. In turn, that could affect ports, warehouses, and manufacturing activities in China.
The inter-related nature of global supply chains all but guarantees disruption at one port will have a ripple effect on other ports.
Uneven port management isn’t easy to fix. It affects the timely off-loading of full containers. And it affects the timely return of empty containers. And that results in higher prices for capacity as well as storage.
#6: Labor Shortages. Yes, labor shortages are driving shipping prices higher. Let’s look at what’s driving labor shortages.
For starters, the government reported a banner unemployment rate for May 2021. The Bureau of Labor Statistics reported May’s rate at 5.8 percent. Although this seems like a positive development, it means the pool of eligible workers is shrinking.
Also, as long as the government provides Covid-relief checks, many workers will extend their unemployment. This will dampen the recovery’s return to pre-pandemic levels that registered at 3.8 percent.
You can see this more clearly when looking at the labor force participation rate.
In May, it was 61.6 percent, and it hasn’t moved much in the prior twelve months. Compare that to a labor force participation rate of 64.7 percent in February 2020. That shows the return of potential workers is falling short of the demand.
These factors will continue to keep labor in short supply. And with labor in short supply, containers will take longer to off-load/load affecting both availability and prices.
#7: Strong Economic Activity. Finally, recent economic indicators indicate a strong recovery is in the works.
Pent-up demand is high further exacerbating the return to work as discussed earlier. And it appears pent-up demand will unwind for some time.
Let’s look at some recent U.S. economic data and analysis.
PMI-Manufacturing, meanwhile, came in strong in May at 61.2 percent. (A reading above 50 percent suggests an upward trend in economic growth.)
May’s reading increased from April’s reading of 60.7 percent. That continues a twelve-month growth trend. That trend implies a strong and durable recovery is in the works.
The upshot of a strong recovery is that it will put pressure on prices for commodities, labor, and shipping. And that includes container-related costs.
Navigating Rising Shipping Prices
The return to pre-pandemic operations remains elusive. A New Normal is taking hold that points to increased uncertainty and volatility. Along with that surges in cargo volumes and cargo flows are driving up shipping prices as container-related costs increase.
And it appears high rates will persist for the rest of the year and possibly into 2022.
As a shipper your best bet is to partner with a 3PL that can get you the capacity you need at competitive prices.
In times like these, it’s imperative to find a long-term partner who can protect space and rates.
Contact us at American Global Logistics, if you could use a reliable partner in finding you the best shipping options. You can also reach us by phone at 1.404.480.4593 or by fax at 1.404.480.4889.