- Cecilia Baria
- BBC News World
The cost of importing products from China has risen to unimaginable levels.
“If you were paying $2,000 to move a container from China to the West Coast of the United States, now you have to pay $20,000,” explains Teddy Heinsen, president of the Dominican Republic Shipowners Association.
“It’s very difficult,” he told BBC Mundo, the BBC’s Hispanic service.
Behind the astonishing increase in the value of sea freight is the so-called “container crisis”, that is, an extraordinary shortage of space available to transport goods from Asia to the West.
In addition to the shortage of containers, there is congestion at major international ports and temporary closure of some Chinese sea terminals due to strict measures to control the COVID-19 pandemic.
Like an oil-free gear, when one of the parts malfunctions, the entire system shuts down.
Now that the international economy is starting to recover and consumers in various countries want more products, the global shipping system is struggling to meet this demand.
Demand will increase as we approach the holiday season.
Therefore, importers of all kinds of products, especially electronics, expect difficulties during Christmas shopping.
“There are not enough ships, not enough containers, and there are a lot of delays in ports to get in and out. This affects the supply chain,” Hensen says.
“Most importers are doing their Christmas shopping now,” he adds. But since the situation is so challenging, “it is very likely that there will be a shortage of Christmas products because they will not arrive on time.”
Carlos Restino, CEO of the Argentine Association of Game Companies, has a similar perception.
“What is happening is very serious,” he told BBC Mundo. “It’s not just games, it’s a general problem.”
He explained that the price of a container from China to Argentina has doubled, but importers fear that by the end of the year the value will rise three or four times.
“We don’t know how that might affect the price consumers will pay, but it’s possible that some games won’t be available,” he says.
Restino stresses that the difficulties are not only related to the shortage of containers or bottlenecks in the ports.
“Some Chinese companies are producing less,” he says, due to restrictions associated with the epidemic.
The Asian giant also imposed strict rules to control the spread of new waves of the virus. When the disease breaks out in certain places, production is delayed, and this means delivery times are extended.
Thus, every time a factory closes or every time a port closes, some importer is left undeliverable. Some consumers are left without their products.
“Buy Christmas Gifts Now”
Shipping experts say the pandemic has caused one of the biggest crises in history since containerization began in World War II.
“The entire port infrastructure system is overburdened,” says John Manners Bell, CEO of consulting firm Transport Intelligence.
Consumers feel this when they see product delivery delays, shortages or price hikes.
“Buy your Christmas gifts now,” Steve Lamar, executive director of the American Shoe and Apparel Association, warned in late July.
Lamar described the problem of commercial transport as an “acute maritime crisis.” In a letter to President Joe Biden, he urged the US president to take steps to help end a “devastating cycle of long delays and huge costs.”
The pandemic has caused all kinds of disruptions in the supply chain, from a scarcity of raw materials or labor to a lack of space on cargo ships and offshore terminals.
Much of this situation is a relic of the past year. When companies reduced their purchases amid the lockdown, many carriers reduced their operations as well.
But when demand re-emerged in many parts of the world this year, experts say, the transportation system wasn’t ready to respond to this renaissance.
If we add to that the temporary closure of port terminals in China or the closure of factories in countries such as India, Vietnam or Bangladesh due to the epidemic, the puzzle becomes complicated.
About 80% of the goods we consume in the world are transported by sea, according to estimates by the United Nations Conference on Trade and Development.
So if freight rates per container go up too much, it will end up hurting consumers.
According to data from Drewry Shipping, a company that monitors sea freight rates globally and publishes them in its Drewry World Container Index, the cost of shipping a 12-meter container on eight of the major East-West routes is $9,613 (approximately R$50 thousand). An increase of 360% over the previous year.
The largest price increase occurred on the sea route between Shanghai and Rotterdam in the Netherlands, where the cost rose by 659%.
In Latin America, the situation varies from country to country and prices change dramatically when it comes to a small company with little bargaining power or a giant company that achieves a large scale.
For example, before the pandemic, the cost of shipping a container between Shanghai and South America was around US$2,000 (R$10,000) on average.
Now, however, it has already exceeded 7,000 US dollars (36,000 Brazilian reals), according to estimates by specialists from the Inter-American Development Bank, IDB.
These numbers are constantly changing.
To BBC Mundo, Harvard Business School professor Willie Shih explained that the shipping crisis has implications for the rest of the economy.
“Many of the logistics costs are on record, and eventually someone has to pay for them,” explains the researcher. “Consumers are likely to be.”
Another big challenge, he adds, is that small businesses that are unable to afford the costs will be put in a tight spot with their finances.
Some may have to close their doors.
But until this critical situation is reached, businessmen are trying to anticipate their Christmas imports because the coming months will be complicated.
Donald Nairn, owner of the Scottish toy company Toys Galore, told the BBC that nearly all of its suppliers had warned him there would be a shortage of goods at Christmas.
“At least half have raised prices,” Nairn said at this point in the year.
“We will do everything we can to absorb costs, but there will inevitably be price increases.”
In the UK’s particular case, the global shipping crisis has been exacerbated by the effects of Brexit and a shortage of truck drivers to transport products, a combination that does not bode well for the results.
At the moment, experts agree that the logistical problems of transporting goods will continue until 2022.
Companies such as Adidas, Crocs and Hasbro have already warned that they are preparing for a difficult end to the year due to logistical disruptions.
One of the biggest challenges they face is having to make business decisions without knowing what will happen to the delta variable and how it will affect ocean freight rates.
For example, the partial shutdown of the Chinese port of Ningbo-Zhousha in August after a port worker contracted a confirmed case of the COVID-19 virus, forcing major international shipping companies – such as Maersk or Hapag-Lloyd – to seek other alternatives to the port and warn customers of delays. .
Toy maker Hasbro, for example, expects its average shipping costs to be four times higher than last year.
With that in mind, Deborah Thomas, the company’s chief financial officer, cautioned against making pre-purchases to avoid frustration.
In the medium term, business and experts are concerned about the future outbreak of the coronavirus and the extent to which China and other major port countries will continue to enforce strict regulations to protect their residents.
“Maybe we get lucky and the situation will continually improve from here, or maybe the mismatch between supply and demand will last for several years,” wrote Stavros Karamperidis, professor of marine economics at the University of Plymouth in the UK.
He added that if high sea freight rates persist, the debate is likely to grow over whether it is wise to rely heavily on China as a global industrial hub.
With relations between China and the West under constant pressure and the idea that globalization could give way to the process of regionalization of the epidemic, some analysts have begun to argue that goods should be produced “closer to home.”
Right now, the big challenge for retail is to meet Christmas demand.
“The longer this crisis in shipping continues, the more problems Natal will face,” said Karambiridis.
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