Importers Feel the Heat of Skyrocketing Shipping Container Costs
By Glenn Taylor
2021.01.25 Sourcing Journa
Container ships come and go during a busy season ahead of the spring festival, at a deep water port of Yuanyang International Terminal in Yangzhou City, east China's Jiangsu Province, January 15, 2021.
As the worldwide demand for Chinese goods continues to rapidly increase amid the Covid-driven growth in e-commerce spending, it’s creating a shortage of shipping containers, and unfortunately for actors throughout the supply chain, whether it’s the exporters, the manufacturers, the retailers or their consumers, they will all continue to bear the burden of higher costs. RELATED ARTICLES
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Earlier this month, The Wall Street Journal spoke to Chen Yang, who runs a textile trading unit at a state-owned enterprise in China’s southern city of Hefei. Yang said that the business, which mostly exports to the U.S., expected to lose money in 2020 in part because of the sharp rise in shipping costs. A 40-foot shipping container arriving at the port of Charleston, S.C., in December cost Yang approximately $7,500, up from $2,700 in April, he said. The textile trading operator said he also has to book space on the vessel at least 20 days in advance, which would be more than double the usual time. And Johnny Tseng, the owner and director of Hong Kong-based J&B Clothing Company Ltd., which manufactures garments for top U.K. fashion sites including Boohoo and Pretty Little Thing, said the inflated shipping rates could come at an even bigger cost—his own business. “To be honest I don’t even know how we can survive if we carry on shipping things at this kind of cost,” Tseng told the BBC.
While Tseng said the usual price to ship a container to the U.K. is $2,500, the clothing company is now being quoted $14,000. Congestion at U.K. ports due to the high demand even caused some of his stock to miss the busy Christmas season. With the delays, some retailer customers are holding orders for their autumn-winter collections until next year.
The shipping container price increases have been universal, well beyond the scope of the textiles and apparel space. Helen White, the founder of U.K.-based online contemporary home lighting seller Houseof.com, told the BBC that her company was paying 1,600 pounds ($2,175) per container in November, but was quoted for over 10,000 pounds ($13,656) in January, forcing the company to take a loss on what they sell. Don’t just take their word for it—numerous shipping container trackers are backing up what many business operators like Yang, Tseng and White have to say about the fallout from surging demand. The Freightos Baltic Global Container Index (FBX) climbed 38 percent month-over-month in December alone to a new high of $3,377 per 40-foot container or equivalent unit (FEU), marking a 143 percent increase annually over December 2019 averages. These numbers have only continued to increase even further to $4,071 per FEU as of Jan. 22, marking a 163 percent year-over-year jump.
Drewry’s composite World Container Index increased 2 percent month over month to $5,340.30 per average FEU as of Thursday, marking its highest level since 2011. The longer-term expenses have been incredibly expensive, with the index indicating that the cost of shipping an FEU from Shanghai to Los Angeles has almost doubled from early June to around $4,200. That same container shipped to the Port of Rotterdam in the Netherlands jumped a whopping four times during that span to costs of nearly $9,000. U.K. ports snubbed in favor of other European destinations In the U.K., problems persist as freight lines have been trying to drive down demand from British importers by charging a premium for deliveries to the country, or even bypassing British ports altogether. The heightened freight rates in the U.K. are causing more of these lines to prefer Rotterdam, Germany’s Port of Hamburg, or Belgium’s Port of Antwerp. “Most of the carriers just don’t want U.K. cargo because of the issues when the vessels dock, so mainly they’re favoring European ports and we are having to truck containers over,” Craig Poole, managing director at freight forwarder Cardinal Maritime, told the BBC. Poole said that adds a cost of up to 2,000 pounds ($2,735) per container, and takes an extra seven to 10 days to reach the delivery point in the U.K. Global ports overcrowded Pandemic-related safety measures have lowered efficiency at ports throughout the globe, leading to delivery delays and containers getting stuck all over the world. In November, only half of global carriers managed to stay on schedule, compared with 80 percent a year ago, according to a service-reliability index from Sea-Intelligence. This increase in inbound shipping containers is apparent in the U.S., where they have been significant congestions and delays throughout the pandemic. U.S. ports have been no stranger to the flurry of containers, particularly throughout the holiday season, with inbound shipping containers jumping 23.4 percent year over year in December, according to The McCown Report, which tracks shipping containers both inbound and outbound from the top 10 ports in the U.S. This comes in above the midpoint of the large increases of November (25.1 percent) and October (18.1 percent). The report noted that it had been more than 10 years since the recovery of the 2008 financial crisis that any month had the level of year-over-year gains in inbound containers that has occurred in the past three months. The Port of Los Angeles executive director Gene Seroka disclosed that during the week before Christmas, the port handled 94 percent more traffic relative to the same week in 2019. Looking to manage the bottlenecks at its docks that has caused import and export delays, the port is launching a new incentive program to move trucks faster and more efficiently through its terminals.
The “Truck Turn-Time and Dual-Transaction Incentive Programs” offer terminal operators two ways to earn financial rewards–one for shortening the time it takes to process trucks dropping off or picking up cargo, and the other for trucks handling both transactions in the same trip. Not helping the high prices on imported Chinese goods is that since there are so many shipping containers out at sea, there is an unbalance in the number of containers that China is importing back into the country. The average turnaround time for containers returning to China was up to 100 days in December from the more typical 60 days, according to the China Container Industry Association. Two recent incidents exacerbate some of the problems that ocean freight shipping continues to face. Earlier this month, AP Moller-Maersk, one of the world’s biggest integrated container logistics companies, confirmed that one of its container ships from China to the U.S. lost several hundred containers with 750 20-foot equivalent units (TEUs) in the Pacific Ocean. The incident came after the One Apus container vessel lost 1,816 containers in November last year en route from Yantian Port in Shenzhen to the Port of Long Beach. Based on the limited capacity, congestion in highly trafficked areas such as the Port of Los Angeles and the U.K.’s Port of Felixstowe, and unpredictability in inventory forecasting and replenishment, container shipping rates and service are unlikely to improve until much later this year, according to a December report from CBX Software.
Initial expectations were that backlogs could begin to be cleared during the Chinese New Year holiday in February, when all factories in the country would typically shutter for two weeks. This pause in production would ideally give ports a chance to clear the backlog of ships waiting to dock, and encourage shipping lines to move more empty containers back to China. But with the continued surge in coronavirus cases, Chinese authorities are staggering factory closing dates so that not all workers are traveling to their home regions at the same time. Additionally, a worsening outbreak could lead to travel restrictions, in which case some factories may not stop manufacturing at all and instead giving workers financial incentives to continue manning the production lines through the Lunar New Year holiday.
And of course, uncertainties related to tariff policies amid a new U.S. presidential administration all will continue to play a role in shipping container pricing and overall prices on Chinese goods.