Container logjams and spikes in shipping prices are hobbling world trade.
Shipping lines are charging escalating fees – in our experience up to 700% since before Covid-19 struck – despite providing a much-diminished service.
Delays have increased to the extent that containers of Dolphin Bay’s CCA that we would previously have shipped within days have awaited export from South African ports for four months, and imports have been equally delayed.
As an emergency measure, Dolphin Bay is now trucking goods across Africa, choosing to take on all the hurdles this entails, rather than wait indefinitely for a vessel to transport our timber preservatives. We know, out of experience, that we do this at great risk to our company.
“It is exceptionally frustrating to deal with the extreme challenges of shipping,” said Dolphin Bay Chief Operating Officer Thinus Ferreira. “We constantly try to change things, but shipping lines provide no answers to our questions. Shippers are at the mercy of the shipping companies, and they know it.”
The delays have been dubbed “Containergeddon” by Reuters news site, and “a shipping logjam like never before” by Yahoo finance, which notes that the delays affect everything from semi-conductors to cars, sneakers, and exercise equipment. Factory closures in Asia were the initial cause, as workers fell sick with the virus, but we are now witnessing “a massive, unprecedented traffic jam of humankind’s largest sea vessels.”
“There used to be nine vessels that could transport our goods; now there is now only one. We have had goods in port awaiting export for four months.”
The United Nations’ Food and Agriculture Organisation noted that food prices globally had risen 33% in the year prior to August 2021, driven by extreme weather, soaring freight and fertiliser costs, shipping bottlenecks and labour shortages. “South African consumers do not realise the role that shipping costs play in the escalation of food prices, including basic foodstuffs like rice and oil,” said Thinus.
The highest increase in costs for Dolphin Bay’s routings is over 700% since early 2020, Thinus noted, although charges have not increased on certain routings. “Meanwhile, the number of routings available to us has decreased dramatically. Previously, we had routings weekly; now they are three-monthly or more. There used to be nine vessels that could transport our goods; now there is only one.”
Shipping lines used to provide fixed contract rates for a year, providing a measure of surety of cost to shippers. However, shipping companies no longer provide new contract rates and are not renewing any current contracts once they expire, saying they will be charging monthly costs instead.
These out-of-contract costs are increasing continuously.
Some shipping lines are reported to have frozen fees to prioritise their relationships with clients, but those serving South African ports have not. Meanwhile, some lines are raking in record profits: Maersk is heading for an annual profit that will make business history in its home country, Denmark, and will match its combined results for the past nine years, the transportation and logistics news site AJOT has reported.
Thinus acknowledged that hazardous cargo was particularly badly affected. Shipping lines’ first priority is refrigerated goods such as fruit, vegetables, and meat. General containers come next, and hazardous cargo is last in line. “This was always the case, but the effect was not so dramatic in the past.”
Thinus monitors international shipping trends. Before Covid-19 struck, he noted, there were generally enough containers and routings for most shippers. However, the economic recovery after the pandemic caused a spike in demand for DIY goods, electronics, exercise equipment and other items people desired when working at home, as well as for the PPE (personal protective equipment) needed worldwide to prevent Covid-19 transmission.
These goods are now taking up much of the container space that was previously available, and shipping lines are rerouting their vessels to the countries where demand is greatest.
Shipping lines have consolidated in recent years and a handful of companies now controls the global market. These companies are tremendously powerful. Ships require such large capital investment that it is very hard for new plays to enter the market and cause disruption to occur in the shipping industry, as the Dolphin Bay Brief has previously reported.
“We are experiencing an economic trend: demand outstrips supply so the shipping lines can set their price,” said Thinus. “The problem is that there is very little alternative. Despite the price increases, shipping is still cheaper than air and road freight, and intercontinentally, road transport is not an option.”
The Wall Street Journal recently reported that transportation costs, previously a fraction of the finished product’s price, are now overwhelming some firms. One company said it now spends ten times more than its historical cost on transport.
Dolphin Bay’s many queries, including a request for comment for this story, have received no response from our shipping line. “They have given me the impression they don’t know about the delays,” said Thinus. “It seems that the national offices here are at the mercy of the headquarters overseas, and the answers from there are extremely slow, or even non-existent. In my 15 years’ experience, shipping lines’ customer relations are very poor compared to those of other industries.”
The logjams and escalating costs are likely to continue until the second half of 2022, Thinus and other commentators have observed. “The imbalances are simply too great. It will take time for the equilibrium between the different trade routes in the world to be restored,” said Thinus. “Nevertheless, it is an artificial demand that has been created by Covid-19, and although we’re in for a rocky few months ahead, I think that in time the routings will return to normal.
“As soon as there are surplus vessels, certain lines will decrease their rates again to be competitive.”