As the pandemic appears to be easing, at least in the UK, there is much talk of ‘opening up’ and ‘revival’. This may be the case for some industries, but the world (and perhaps the markets) are largely ignoring the rumbling crisis in global shipping that took root last autumn and shows no signs of improvement.
I run a business that imports containers of freight from the Far East into the UK each year, here is what I’m seeing:
Throughout 2019 we were paying around $1750 for ocean freight from our most used Chinese port into the UK. This rate is now in excess of $10000. This shows few signs of improvement. If you sell cheap items that take up a lot of space in containers that has huge ramifications for product cost. It’s easily possible that item price may double or more just because of increased shipping cost alone.
The Suez issue in March isn’t to blame per se, but didn’t help. In April over half of our planned shipments were cancelled or delayed. Shipping lines are operating around 10% ‘blank sailings’ (where the whole sailing is cancelled), where there is a successful sailing it is hugely capacity constrained and historical ‘guaranteed space’ contracts with shipping lines are just being ripped up. There is also a huge shortage of physical containers to load stock into.
In my opinion many retailers will find that a large amount of their stock will not arrive this Christmas. I’m sure many suppliers are not yet making customers aware of this possibility. The issue is that the capacity problems don’t just create a short term issue, they create a huge global backlog. When so much consumer spending is seasonally tilted to Q4 each calendar year this situation just doesn’t work, everything breaks. If Christmas stock arrives on December 26th it’s pointless. The supply/demand situation in shipping has no chance of returning to any sort of ‘normal’ this year, so stock will just not arrive on time in many cases.
What does this all mean? The obvious result is high inflation of consumer prices on many imported goods. The official inflation predictions do not match my live experience.
There is a desperation from retail to regain lost sales caused by the pandemic. Not only are sea freight rates unfathomably higher than before, but because retailers are so desperate to make up for lost sales it has meant that production areas in the Far East are having a bumper year of huge orders, with demand pushing item prices up (in our case) 40%-50% for stock and end customers (the retailers) left with no choice but to accept increases, often in our case with no clear picture of what the final cost will be (the delivered price we quote currently includes a ‘variable’ shipping rate to be stated at the time of shipment, whenever that is). I’m having conversations that effectively go:
Customer: ‘We’re relying on this stock to help us bounce back from covid, we’ve been closed for months and footfall is minimal’.
Importer: ‘Ok, we’re going to have to charge you 50% more than last year, plus a shipping supplement, and we don’t know when it will arrive’.
Customer: ‘Well, we have no choice…’
Order your Christmas presents now! What does this mean for the markets? Who knows, but everyone seems to be largely turning a blind eye to an issue that’s already gone too far to prevent.