It may be time to start ordering Christmas presents now. We may be 2 months out, but global supply chains are already at a standstill. Traffic through the world’s biggest ports has left scores of ships parked outside LA, Hong Kong and Shenzhen. It’s a more serious issue than delayed gifts. Supply chain disruption puts pressure on prices and maybe a catalyst for inflation.
Hundreds of container ships are sitting at anchor outside ports with Hong Kong and Shanghai the worst affected. Since the start of the year, the cost of a 40ft container has risen to US$10,000, up around 80%. This is up 500% since the start of 2020. What’s going on? We’re about a year into a steadily building shipping crisis which is continuously compounded by a number of factors. Sure, the Ever Given blocking the Suez Canal and stealing headlines contributed to the problem, but it has only been a relatively small part.
To start, no prizes for guessing the virus has played a part. Many of Asia’s ports have a zero-covid policy. One positive case causes the port to majorly downgrade operations. In May, Yantian shut down for a month and in August, Ningbo was closed for a fortnight. Both Chinese ports are among the five busiest in the world. Global shipping runs through China. They own 7 of the 10 busiest ports in the world, a product of their huge exporter economy.
Interestingly, the crisis is largely an issue of decreased ship supply rather than surging demand for ships. Global demand for containers is estimated to have risen by around 4%. With free-flowing ports, shipping companies should be able to handle the demand. Given the long delays many ships are now facing, it’s a supply issue hampering the economy.
So, what does this mean for economies and businesses? In short, those reliant on imports may struggle to supply the market. For consumers, this tends to mean higher prices. That increase in shipping costs has to be passed on somewhere. Interestingly, companies like Walmart and Home Depot are chartering their own ships paying almost double the market rate to ensure their products arrive in the States.