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The Acceleration of
Transportation Shortages...Part 3
from the publisher
The container shortage is not going away! This is not just an “opinion”. If you get time, check out the article in the pages ahead on the lingering effects of transportation shortages. I’ve discussed ocean containers, but we are now seeing it in all intermodal aspects of transportation. If you don’t believe me, go down to your grocery store and check out how much basic food stuff costs. You need trains and trucks to carry the “pass on” costs of the container shortage…it all flows downhill!
This is a complex problem, and it is not something that can be digested in a macro sense. In our feature article, a real supplier discusses the complexities of the container shortage and the impact Covid 19 has had on world trade. I would like to re-exam the macro analysis of what I think is at the root of this crisis. Once again, I must go back and look at how we reached this point. The question I poise is this…could it have something to do with creating more demand than supply and in turn increasing the amount charged to the supplier/manufacturer to export their products.
Let’s step back in time. The Suez Canal incident exacerbated the transportation shortages. However, this happened to be sheer coincidence that the Suez Canal incident happened during a time when transportation shortages were already being reported as early as November 2020. The Suez Canal incident happened 3 months later. I may have found partial answer in an article last year. From that article, US transport consultant Jon Monroe said this:
“We should remember that carriers began managing (manipulating) the space before contracts were completed in order to keep rates up to a certain level. Once the contracts were completed, carriers kept blank sailings for another seven weeks, thereby creating a backlog of bookings.”
Monroe acknowledges that there has been a surge in demand for capacity, but adds, “But what made this so terribly difficult was the early manipulation by the carriers to create a tremendous backlog. So, if the carriers did not create this problem, they certainly were a major contributor to this mess.”
We are now into September and the problem is still going on. Container shortages still exist and we may be getting to a point of clarity regarding this issue. Bloomberg had a straightforward analysis of the container crisis and it is something US shippers already knew. It starts out saying “Food is piling up in all the wrong places, thanks to carriers hauling empty shipping containers”.
It then goes on to explain that Global competition for the ribbed steel containers means that Thailand can’t ship its rice, Canada is stuck with peas and India can’t offload its mountain of sugar. Shipping empty boxes back to China has become so profitable that even some American soybean shippers are having to fight for containers to supply hungry Asian buyers.
“People aren’t getting their goods where they need them,” said Steve Kranig, director of logistics at IM-EX Global Inc., a freight forwarder that handles cargoes including rice, bananas and dumplings from Asia to the U.S. “One of my customers ships 8 to 10 containers of rice every week from Thailand to Los Angeles. But he can only ship 2 to 3 containers a week right now.” The core issue is that China, which has recovered faster from Covid-19, has revved up its export economy and is paying huge premiums for containers, making it far more profitable to send them back empty than to refill them.
The article points out that while it is not entirely uncommon for containers to transit back empty after a voyage, carriers usually try to backfill them to profit from shipping rates in both directions. But the cost of carrying goods from China to the U.S. is almost 10 times higher than the opposite journey, prompting liners to favor empty boxes instead of loading them, Freightos data showed.
My conclusion is that the trade war with China has evolved into some unexpected consequences. Make no mistake…the carriers are making money. But the US suppliers of food and agricultural products are once again the victims. In a recent article by The Insider, it was summed up best.
US exports have not kept up with imports from China, our largest trans-Pacific trading partner. According to FreightWaves SONAR data, import volume from China via ocean shipping is up 54% year-over-year. Exports have only ticked up by 4.4%. That means lots of containers are leaving Asia, but not enough have been returning there.
This is about China! Make no mistake…the trade war never left. It did not disappear because we have a new administration. China is still exporting a disproportionate amount of products into the United States as compared to the US exporting a mere 4% to China. I will reiterate this over and over. China has the advantage in the container shortage, and they are not going to flinch. And why should they? The US suppliers are real losers here. They have product that cannot ship whereas China is making huge profits. This container crisis is an off shoot of the bigger crisis and that is the reversal in China-US relations in general. If that gets bad enough…this container crisis will look like a walk in the park. And with that, I will see you on the road.
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