The Tribune

ACTIVTRADES WEEKLY

By Chris Illing

www.activtrades.bs

There is still a shortage of containers all over the world. The ships are jammed in the ports, for example, in Los Angeles. The pandemic is disrupting global trade.

Anyone looking at world trade is somewhat astonished. There is a lack of product and raw materials everywhere, and prices are sky rocketing. Our local Super Value chain warned consumers to expect rising prices in the food store. The containers seem to be the bottleneck. What is going on?

You could say that this is the perfect storm that has been brewing. And it is also a long-lasting one.

It all started with COVID- 19. The pandemic has distorted the situation and unbalanced supply and demand. When the first US stimulus checks were issued in April 2020, and people started buying again, the demand skyrocketed.

World trade suddenly just could not keep up with the demand. The shipping companies did not have enough capacity to transport the goods in demand. It was not because the shipowners sent fewer ships on to the water because of COVID. On the contrary.

It all started in Long Beach, California, in April 2020.The ships got stuck there and the port could not keep up with the handling. We were able to see in real time how this traffic jam affected companies.

Long Beach is one of the ports through where a great deal of goods arrive from China into the US. Suddenly, thousands of containers full of clothing and shoes were standing somewhere on some ship, waiting to enter the port of Long Beach. The ordered goods simply did not arrive in the shops. Shortly afterwards you could see how the stock market price of Nike collapsed.

There have been attempts to bypass Long Beach as an importing port.

Some shipping companies or freight forwarders have tried to call at the east coast. However, this means the ships had to travel through the Suez Canal from Asia. The calculation was that you would then have longer transit times, but that you would be better able to plan. That was the biggest problem off Long Beach: You did not know when a ship could be unloaded. Maritime trade is primarily about predictability.

At least that was the idea. But then the Ever Given got wedged in the wall of the Suez Canal and the ships were backed up there as well. And we had the same problem that nobody knew: Will it take one day until the ship is free again or will it take one month? This, of course, meant that planning was no longer an option.

There was the idea of sending the ships via the route around South Africa.

The calculation was that they would be at the ports of destination before the ships that were backed up in the Suez Canal. It was assumed that it would pile up again at the ports when the Canal became free again. And that has been confirmed, even if not to the extent that many feared.

This is a chain of unfortunate coincidences.

We now see again and again that port capacities collapse when there are COVIA outbreaks. The authorities in Yantian have just closed large parts of the world’s fourth largest port. This also affects the supply chains. In addition, the US is currently acting like a black hole for containers. Many countries are sending goods to the US, but the containers stay there because hardly anything is exported from the US and nobody wants to send the boxes back empty.

One thing about containers is that they are often not where you need them. But that also has an advantage. Containers are also a supply and demand commodity.

The increased demand and undersupply of capacity has caused prices to skyrocket on some routes to an extent that has surprised even die-hard supply chain experts.

We have seen connections that normally go for $2,000 that are now $16,000. This is simply because there is no more space on the ships.

If we can better predict when which ship will arrive where, planning can be done much more efficiently along the rest of the value chain and prices will decrease again. Many companies are currently investing in this.

In order to come up with solutions, one must see that maritime trade is still the backbone of the world economy. It is just not economical to transport toilet paper by plane. And, yes, there is now a train line from China to Germany. Nevertheless, 99 percent of all goods come by ship. That will not change either.

Recently, it was reported that an incredible number of new ships had been ordered. But a ship is not ready tomorrow; it takes a long time to get on the water. And there is very little unused capacity in the entire chain - the ports also are extremely full.

One of the biggest problems is that goods that are currently on the water represent tied-up capital. This applies to Nike shoes and car parts, but the more it is, the more expensive the goods are. One solution could therefore be for companies to gain a better overview of where which goods are currently, and when their predicted arrival is. This makes it much easier to plan many processes from one end of the supply chain to the other. If one knows six weeks in advance that the auto parts will be two weeks’ late, one has several weeks to respond.

We see that many companies are dealing with the topic of tracking and visibility. The worldwide trend and debate about producing more regionally again flared up during the pandemic. What we are observing, however, is that most of the containers are still coming from China. I do not think that is going to change either overnight.