Skip to the content

What to know about containers and shipping rates

A significant shortage of freight containers is creating chaos.

What happened? The pandemic initially drove a dramatic decline in maritime shipping as companies cancelled their voyages and docked their ships, which dramatically reduced shipping capacities. The Suez Canal crisis then disrupted about 12% of global trade and only added to the shortage of ships and containers stranded at terminals and out at sea. As freight forwarders and shipping operators experienced diminished capacity, ocean freight quickly became a massive bottleneck in global supply chains.

Where are we today? A historic snapback in domestic demand for goods as the US economy recovers and businesses reopen has contributed further to the backlog at shipping terminals and driven a historic level of imports from East Asia. In fact, securing a container now takes six to eight weeks and freight bookings have been pushed out by another three weeks on average due to backlogs, stranded containers and container ship congestion in US ports. Historically, securing both a container and a freight booking only took one to two weeks.

Where are we heading? The shipping industry is now bracing for an entirely new crisis: a virus variant outbreak in the southern China province of Guangdong (i.e., the cities of Shenzhen and Guangzhou) will disrupt port services and delay deliveries, thus driving shipping costs even higher. This province accounts for an estimated 24% of China’s total exports. Moreover, the confluence of multiple global shipping disruptions is expected to drive longer lead times and higher prices through 2022.

Supply and demand have been upended, driving higher prices

Despite strong demand for containers in the US, supply and demand are extremely skewed.

Global trade hubs do not have enough containers to handle cargo demand. For instance, the Port of Los Angeles stated at a May 2021 conference that approximately 75% of containers arriving in Los Angeles are leaving the port empty, meaning US exporters have significantly fewer containers and are facing higher prices as a result of dwindling supply. Containers are leaving US ports empty because freight forwarders are taking containers to other ports around the world to fetch higher prices. It costs about $4,000 to $6,000 to send a 40-foot container to the Pacific by sea from a US port, thereby creating financial incentive for freight forwarders to skip US exporters to cash in on lucrative routes from east Asia. For example, shipping a 40-foot container from Shanghai to Rotterdam, Netherlands is priced at about $10,000; other routes originating in the region are currently priced between $10,000 and $15,000.

A standard 40-foot container typically fits about 18-20 pallets. In the wake of the significant delays at ports and long lead times, air freight has become a very expensive alternative and few other viable alternatives exist. For instance, shipping just one to two pallets via air freight is now priced at about $2,600. Demand for road and rail freight have also spiked significantly in response to ocean freight stoppages, but these modes of transportation are often not a viable substitute to global ocean freight shipping lines.

Key Takeaways for Procurement Professionals

  • The United States Federal Maritime Commissioner, Carl Bentzel, has launched an investigation into China’s market power to monopolize containers, whether the US has become dependent on containers and equipment produced in China and exploring the refusal of service for US exporters. This investigation will likely spur US government policy change to increase US production of containers and port equipment, including chassis, to mitigate US dependence on China.
  • Shipping line lead times have doubled in many instances from China to the United States, including a shipping line from Beijing to Chicago, which has doubled from 33 days to 65 days on the back of significant port congestion in China. An emphasis on customer experience and satisfaction is important to protecting revenue in the wake of longer lead times. Procurement professionals can best achieve this by leveraging real-time analytics to automate and personalize the customer experience.
  • Procurement professionals need to reevaluate the prioritization of sales revenue and lean inventory because companies are experiencing lost sales due to too-lean inventories. Procurement professionals should pivot management strategies away from just-in-time and toward just-in-case.
  • Procurement professionals should centralize freight spend strategies and digital systems to capture actual spend compared to planned spend across all logistics service providers. This can help transportation departments that are operating in extreme pricing conditions pivot away from reactive strategies. Managers should centralize procurement contracts, rate amendments, carrier selection, execution, audit and freight rates to increase holistic visibility and control strategy to evaluate trends over time.

 

By: Riley Mallon

Sign up to our newsletter










Related Articles

Halftime Report: 5 Procurement Trends in the Second Half of 2021

Procurement departments and buyers that embrace proactive spending strategies are better equipped to reinforce supply chain resiliency in their organizations.

Chinese Telecom Equipment Vendors Face Trouble in the United States

Procurement professionals should examine the increasing risks when sourcing telecom equipment and services from Chinese companies, including regulatory compliance risks, intellectual property infringement, quality failures and political risks.

Service Sectors Lead the Way out of Recession

The hardest hit sectors are driving the recovery from the pandemic.