From China’s Lockdown to Global Structural Imbalances
Every stage of the global supply chain is facing a shipping crisis and forcing forwarders to make significant changes to their operations. Covid-19 lockdowns and restrictions have already resulted in additional operating expenses for businesses and reduced customer satisfaction. The main issue is the higher freight rates due to the difficulty of booking shipping slots, especially on certain dates, with many deliberating on keeping safety stocks.
This strategy allows them to build extra time and use raw materials between deliveries. Some plants have even taken downtime due to shortages of raw materials. Others, especially in China, shut down temporarily because of the lack of shipping containers for export. The underlying cause of supply chain disruptions is not the shortage of containers, however. It is the failure of carriers to position them to meet market needs.
What Caused Container Shortages?
With China’s significant role in global manufacturing, a huge portion of the containers moves between China and North and South America and Europe. This results in a structural imbalance, with vessels carrying cargo from China to major markets and then returning empty to ship commodities again.
The efficiency and productivity of global manufacturing processes depends on the quick movement of containers. The system worked well before the onset of the pandemic when plants in China shut down. During this period a large volume of containers remained stranded wherever they happened to be before the lockdown. Some were stranded onboard of a vessel, others overseas, and still others at a warehouse, on the road, or at a Chinese plant.
When China’s economy began to gain momentum, the U.S., EU, and other major economies were imposing restrictions and entering lockdowns. As Chinese manufacturers were trying to resume export, they were faced with an inadequate supply of containers.
Ships Out of Service
Some Chinese carriers chose to take vessels out of service instead of running half empty. Some shippers did not resume operations because of container shortages and uncertainties on some routes. Turnaround times increased significantly in some parts of the U.S., and according to some experts, major freight forwarders were using containers as portable warehouses. Instead of renting additional storage facilities as the more expensive option, they chose to pay demurrage charges.
Skill and labor shortages have become a significant problem for the shipping industry worldwide. And it is not only the shortage of chief engineers, first mates, and captains to meet demand but also the lack of entry-level seafarers. This has become a global problem, from Hong Kong and London to Canada and Greece. Despite that marine staff enjoys high salaries and other benefits, the pool of skilled marine officers is shrinking globally. Some operators have been forced to call back first mates and captains from leave and retirement. And because of the pandemic and uneven economic recovery, trucking operators, warehouses, and shipping companies face periodic labor shortages which further slow the movement of containers.