The RSMR Weekly Broadcast - The price we'll pay for the global shipping crisis

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Sensational shock stories about the lack of availability of goods for Christmas have hit the headlines. Advance planners will be counting their chickens right now but the more last-minute among us could be wishing they’d adopted a different shopping strategy in 2020.

The UK relies heavily on imports and around 40% of all goods arriving by container from China land at the port of Felixstowe. The supply chain is normally a slick and well-oiled operation, but we now seem to have been plunged into unprecedented and frightening waters. Global shipping schedules were initially disrupted during the early stages of the pandemic, but recently a surge in demand for imports and a backlog of empty shipping containers are causing huge bottlenecks at UK ports.

There are ships stuck out at sea waiting to dock, there’s a lack of space in the ports and once containers do arrive, they’re taking longer to get unloaded. Social distancing rules and isolation have lengthened the time it takes for containers to leave the ports with the average clearance now taking 8 days instead of 5. Major cargo shipping companies, Maersk and MSC, are swapping Felixstowe port for Liverpool to try and stabilise their transatlantic trade services but this won’t provide a solution to the bigger picture. The UK isn’t the only nation suffering, around the twin ports of Los Angeles and Long Beach, shipping containers are already stacked five or six high and there’s a flotilla of almost a dozen cargo vessels currently anchored just south of Los Angeles, waiting for berth space.

One freight director said the UK's ports are currently ‘broken’. The logistics industry has written to the Department for Transport calling for help to clear port backlogs. What is the disruption caused by? In a nutshell, the Christmas rush, coronavirus, and customs. Each of these elements on their own can cause disruption to the supply chain but together, the effect is acute.

The surge in demand for goods in time for Christmas is placing pressure on the supply chain but this is nothing new. Coronavirus has played havoc with supply since early 2020; China went into lockdown at the start of the year and production stopped, when China came out of lockdown a few months later, European countries and the US went into into lockdown. The containers began to arrive in UK ports again but there was nowhere to put the goods. The mass ordering of PPE has also played its part with around 30% of containers at Felixstowe port holding a contingency of masks and gowns.

Another issue caused by the timing of lockdowns means that there are very few ships going back to Asia loaded with containers, reducing the availability of empty containers in Asia. High demand in the run up to Christmas and the general surge in home shopping are causing delays. Add to the pot the uncertainty around Brexit prompting businesses to move goods in and out of the UK in case there is no deal and you’ve got a recipe for disaster.

What’s the effect of all this? A general shortage of supplies in our shops and lead times of up to three months. The Japanese carmaker Honda said delays at UK ports are holding up imports of parts, and production will temporarily stop at its Swindon plant. The Builders Merchants Federation has complained of delays for building supplies such as screws and timber which are crucial for building new homes and keeping the housing market moving.

The global shipping crisis is causing freight costs to soar. On top of skyrocketing shipping rates, carriers are adding congestion charges for imports to Felixstowe and Southampton, because of severe delays. Timing has clearly been affected but the cost of shipping is now also a major issue. Instead of paying $1,000 to $2,000, you are now looking at paying between $8,000 and $10,000 to move a container from Asia to the UK, an astronomical increase fuelled by the imbalance between supply and demand. The bad news is that the cost is likely to be passed on to the consumer unless we stop importing altogether.

What’s the outlook? In the short-term, the government can look at ways of increasing the capacity for moving containers on and off ports and potentially running more and longer trains to and from ports, allowing carriers more flexibility to collect containers out of normal hours, and drivers to take on longer shifts where that can be done safely. The January lull will help to reduce the strain on the supply chain and the vaccine will hopefully mean that more workers are present in the ports, but we’ll just have to wait and see if the reality matches the assumption and cross our fingers for normal services to resume soon…

QUIZ QUESTION: Who does Britain trade with the most?

LAST WEEK'S ANSWER:  Rishi Sunak was elected as MP in 2015