Increase in Consumer Demand Driving Product Shortages
The global logistics crisis is not solely caused by a spike in consumer demand but it is a factor that can’t be overlooked. When the pandemic started, shipping fell due to uncertainty how lockdowns and social distancing measures would affect consumer demand. Crew safety has also been a source of concern.
Then the situation changed on a global scale as consumers were forced to limit their spending on dining out and travel. Many shifted to digital. They began buying electronics, home and office equipment, vehicles, and other goods to make lockdown life more bearable.
With commercial vessels shipping cargo again in mid-2020, it was clear that demand is rebounding and going to be robust. In just a few months, the international freight forwarding industry was already operating at near full capacity, with up to 98 percent of sailings at any given time.
Capacity Constraints Arising
Capacity constraints began to emerge in the UK and US due to truck driver shortages at rail hubs and ports. Bottlenecks at ports resulted in warehouses refusing delivery of new containers. This led to a series of problems. The fact that cargo was taking longer to be unloaded resulted in a shortage of containers to be shipped back. Major carriers have sent notices to freight forwards and trucking companies asking to return empty containers.
Meanwhile ports in the US and China were forced to operate at reduced capacity or temporarily shut down due to shortage of workers who unload and load containers. A major event that caused congestion and shipping delays was the Suez Canal obstruction in March due to the container ship Ever Green being jammed across the canal for 6 days.
Businesses Hard Hit
This series of events resulted in skyrocketing shipping costs for virtually all trade routes. The supply chain disruption has had catastrophic consequences for businesses across all consumer categories. Toy businesses, for example, are facing price hikes of 300 to 700 percent, along with additional fees for securing shipping space and containers.
While consumers will certainly see price increases, pandemic-induced product shortages are to be expected in the months ahead. Consumers may not be able to find whatever products they are looking forward to buying, and there is no quick fix for the current crisis. Delays are expected to persist well into 2022 due to repeated shutdowns at ports, consumers buying goods instead of spending money on entertainment and travel, and shortage of warehousing facilities and truck drivers.
According to shipping experts, another Suez is highly unlikely but port shutdowns due to Covid-19 are certainly to be expected. Shipping signals for logistics companies to watch for are container rates, port congestions, low inventories, freight expenditures, ship building, and carrier profits. For businesses facing bust and boom cycles, these factors will be interesting to track. A decline in shipping rates can be expected if overcapacity occurs in the near future. Meanwhile the best shot for consumers is to purchase products early into the Christmas season.