Shipping capital struggled before the incident in the Suez Canal

Super ship Ever Given “stop picture” intercepting the Suez Canal, sea transport was weak

During the Covid-19 period, it was abandoned, but by the time the demand for freight had increased dramatically, the global shipping industry was struggling to collect empty containers.

Phase “stop picture” across the Suez Canal of the super ship Ever Given. Photo: AFP

Hundreds of ships were stuck

The Suez Canal is the lifeline but also the “Asin heel” of the international shipping industry. The incident of the super container ship “Ever Given” stuck in the Suez Canal earlier this week, has caused more than 200 other ships around the area to fall into a trap and possibly a few weeks to escape.

In fact, before the Ever Given super-ship turned sideways blocking the traffic through the Suez Canal, global supply chains had problems, causing freight rates to rise and supply of many items, from car products. Exercise pedal to cheese, are deficient.

The arterial transport route between the West and the East was blocked by the Suez Canal incident, further exacerbating problems with global supply chains.

The cost of the freight ship being stuck or having to take a longer detour to another route, making businesses more headache because they are inherently facing challenges of lack of empty containers, congestion at ports, transport capacity is narrowed.

Phase “stop picture” across the Suez Canal of the Ever Given super ship has caused consumer shipments from Asia to Europe and North America to stall and agricultural products in the opposite direction also share the same fate.

As of March 26, there were 237 cargo ships, including tankers and dozens of container ships, stranded and waiting for transshipment through the Suez Canal, which welcomes 12% of global cargo traffic.

Bob Biesterfeld, CEO of CH Robinson, one of the largest logistics companies in the world, predicted that the Suez Canal incident would also lead to other serious supply chain problems that the CEO “has yet to do.” have seen “.

Supply chain bottlenecks tend to spread, affecting modes of transport by air, sea, and land. “This is unprecedented,” added Mr. Bob Biesterfeld.

Consequences of high transportation costs

Sea transport “carried” most of the global cargo traffic, with a share of over 80%. The Suez Canal trapped incident caused disruptions in international transport, and also cost supply chains billions of dollars.

According to statistics of the global cargo information provider S&P Global Platts, the average cost of transporting a container in the world has more than quadrupled, from $ 1,040 in June 2020 to $ 4,570 on day. 1/3/2021.

These costs tend to continue to increase in the current situation. The cost of transporting goods imported into the US by container ships in February totaled $ 5.2 billion, 2.5 times higher than the same period last year, according to S&P Global Panjiva.

Freight charges will soon push up consumer prices, leading to the risk of inflation – a scary scenario for Wall Street investors. The corollary that investors are worried about is that rising prices will force the US Federal Reserve to raise interest rates earlier than expected, compared with their intention of not raising the base rate until 2023. dad recently.

Many of the above cost items are in supply chains, said Chris Rogers, an analyst at S&P Global Panjiva. “I think these costs are being pushed into the hands of consumers is inevitable, it is only a matter of time,” Mr. Rogers said.

The Covid-19 pandemic left global supply chains in disarray in 2020 after anti-epidemic blockade orders forced factories to close and global trade was disrupted.

Economic activity was seriously impaired at the early stage when the Covid-19 epidemic appeared in the world, but the number of commercial transactions that rebounded sharply recently has made businesses discouraged.

The processing and manufacturing sector recorded growth again and demand for consumer goods from TVs, furniture to fitness equipment continued to increase, prompting suppliers to burst into production.

“A year ago, global trade fell when the Covid-19 first hit the Chinese market and then spread to the world,” said Gene Seroka, CEO of Los Angeles International Port Complex. . “So far, we are in the seventh month of a record increase in imports due to an unprecedented increase in consumer demand,” said Mr. Seroka.

Imports of US goods via sea in February increased by 30% from the same period last year and by 20% compared to February 2019, according to data from S&P Global Panjiva.

Severe lack of empty containers

The increase in US imports combined with the warming of the demand for goods in many parts of the world made the global logistics industry fall into a shortage of containers, while everything from cars, machinery to garments. , consumer goods all need to be loaded in containers for export.

Large container shipping lines in the world are struggling to regulate empty containers to meet rising freight demand.  Photo: AFP
Large container shipping lines in the world are struggling to regulate empty containers to meet the increasing demand for sea transport. Photo: AFP

Meanwhile, analyst Chris Rogers from S&P Global Panjiva said that most of the container factories are based in China. During the times, many container manufacturers closed earlier than usual, leading to a decline in productivity.

China’s exports recovered quite quickly compared to other countries in the world, but before that, major shipping lines canceled dozens of ships due to declining trade in Covid-19. As a result, empty containers are misplaced and cannot immediately respond to container shipping demand due to increased demand from European and North American consumers for Asian-made goods.

Hapag-Lloyd, one of the largest container shipping lines in the world, has sent 52 ships to resupply hundreds of thousands of empty containers to areas in short supply. In the past, at normal times, the company only needed to coordinate less than 10 ships to solve the container shortage problem.

“The current frequency is 1 vessel per week, but what is more necessary now is to move empty containers,” Rolf Habben Jansen, CEO of Hapag-Lloyd shipping line told investors last week.

The high volume of US imports made congestion at seaports even more complicated, while these places are still facing a shortage of labor due to Covid-19 and reduced capacity. due to quarantine and social isolation measures.

Los Angeles port complex spokesman Phillip Sanfield said on March 25 that more than two dozen ships were anchored waiting to enter the port of Los Angeles or the nearby port of Long Beach.

“At the port of Los Angeles, we are actively working to accommodate 17 more container ships,” Phillip Sanfield told CNN. Meanwhile, before the pandemic, this port usually received only about 10 container ships and no ships had to wait.

In February, the port of Los Angeles handled cargo volume equivalent to nearly 800,000 20-foot containers, making February the busiest month in its 114-year history.

American businesses worry about the broken supply chain

American manufacturers, from toy maker Hasbro, discount chain Dollar Tree, Footwear and Apparel Company Under Armor, Footwear Manufacturer Crocs, to Fashion Retail Group Urban Outfitters , recently repeatedly warned of the risk of supply chain collapse due to lack of shipping containers, prolonged port cargo congestion, plus rising shipping costs and other logistics challenges.

Earlier this month, multinational wholesaler Costco said it was having difficulty stocking up imported cheese due to lack of shipping containers and congestion of goods.

S&P Global Panjiva’s analysis of 7,000 global corporate earnings reports in January and February showed that more than 25% of firms mentioned shortcomings in “transporting goods”, 37% “coal. breathe “about logistics services, while 50% mention the supply chain.

“We are aware of the pressure of shipping in the retail sector that exists here and we have included that in our future plans,” said Mark Tritton, CEO of the domestic retail chain. US Bed Bath & Beyond told investors in January.

Aston Chemicals from the United Kingdom, a supplier of personal care products to European partners, “coal” that the transportation costs they pay in January are 6.5 times higher than two months. before.

“We paid close to $ 14,000 for a container in January,” said Dani Loughran, CEO of Aston Chemicals. “That was for a shipment from Malaysia to the port of Felixstowe in the UK, while it was in November. / 2020 is only $ 2,100 “.

Exercise equipment maker Peloton has criticized the congestion and slow clearance of goods in the US West Coast port for making its deliveries “longer than acceptable”. The company informed shareholders in February that it is investing more than $ 100 million to promote air and sea freight in the next six months to shorten delivery times.

In the competition to win customers, Peloton is not the only US business that “plays to” when choosing to transport goods by air, instead of the traditional shipping method by water.

According to Bob Biesterfeld, CEO of CH Robinson Logistics Company, some durable goods are usually transported in containers, now they are converted to “flying”, such as toys and gaming equipment. Representative CH Robinson said that many US businesses tend to turn to air freight to ensure that the amount of goods in the warehouse is not too low as at present.

Air freight is more expensive than sea freight even in normal times, so this method is often used to transport high value items.

The cost of air travel at this time is even higher than usual, as the number of passenger flights in Covid-19 period is much lower than in the past. As a result, the volume of cargo carried on commercial flights has also decreased significantly.

Experts fear that the increase in shipping costs will cause the total cost of the business to increase, but at the same time also cause the price of goods to increase, especially imported goods.

Commerzbank analysts say the Suez Canal incident could drive up retail oil prices as the costs of tankers trapped around the Suez Canal area are both soaring.

For Aston Chemicals Company, logistics costs have risen so dramatically that they have the only option of passing the fee on to the selling price of the product. Konings, a food packaging company, thinks that retailers and consumers will have trouble if manufacturers decide to pass on the increase in shipping charges to customers.

Suez Canal is located in Egypt, connecting the Mediterranean city of Port Said with the Indian Ocean via the city of Suez. This channel helps to shorten days or even weeks of cargo traffic between Europe and Asia.