Why is there a supply chain shortage?
After more than a year of skyrocketing freight prices and increasing delays, we now find ourselves in the middle of a full-blown global supply chain crisis that affects every business – and every customer. What’s going on?
Watch to learn:
- Why prices got – and are staying – so high
- Why it’s so hard to even get space on a vessel
- What’s going on at the ports and why it’s making supply chain shortages worse
- How one case of COVID-19 in China could mean your Christmas presents won’t arrive on time
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The supply chain shortage in 2021: how we got here and what to expect
More of a reader than a watcher? We’ve got you covered:
International freight is a huge industry. When things go wrong, everyone is affected.
The international freight industry is vast, with $19 trillion worth of goods exported around the world every year.
90% of goods by volume travel by sea, and shipping by sea used to be cheaper than keeping goods in storage.
No longer.
In August 2019, shipping a 40’ container from China to the West Coast of the US cost $1,326.
In August 2020, prices had risen to $3,224.
By August 2021, prices reached $18,425.
There’s more: capacity is so tight that just getting space on a vessel can cost surcharges of $5,000 or more.
All this extra cost is bound to trickle down to the customer. Because with importers and exporters paying more than ten times what they’re used to in freight costs, many businesses have raised prices.
In addition, door-to-door transit times increased from around 40 days to more than 70 days. That means goods you order are likely to take a lot longer to reach you.
What is causing supply chain issues?
Here are five factors contributing to the crisis:
- Passenger flight cancellations
- People buying more goods – and fewer services – during lockdown
- Containers not getting to where they need to be
- Port shutdowns
- Fallout from the Ever Given blocking the Suez Canal
Passenger flight cancellations
Back when covid hit, passenger flights took a huge hit, which meant a major loss in space for air shipments. That meant air freight prices went way up.
People buying more goods – and fewer services – during lockdown
Suddenly, being home all the time, people wanted exercise equipment or art supplies or a whole lot of wine. So they ordered it. So did everyone else. Demand for goods went through the roof and container supply could not keep up.
Containers not getting to where they need to be
With so much demand, containers couldn’t get unloaded fast enough, or return to their origins fast enough, which meant the next round couldn’t get loaded fast enough. Backlog ensued.
Port shutdowns
We have faced roving port shutdowns due to covid outbreaks and also due to extreme weather. And any time a major port is unable to carry out normal activity for days or weeks at a time, it causes major delays.
Fallout from the Ever Given blocking the Suez Canal
The Ever Given was stuck for less than a week, but the effects lasted much longer and piled onto all the other pressures on freight. Goods arrived at their destinations late, causing crowding at the ports and further unloading delays, as well as delays on the return trip.
All of these factors have contributed to the situation we’re in now. Every company, big and small, is affected, and every consumer is too.
How will the shipping crisis be resolved?
There are solutions, but they’re not quick fixes.
For things to improve, supply will need to go down and companies will need to rethink the way they import. The industry is adapting, but it will take time.
In the meantime, you can stay on top of freight prices at ship.freightos.com. While you’re there, make sure to look out for our new service, Guaranteed Capacity, which allows you to book a specific vessel for FCL shipments. We can’t solve the supply chain crisis, but knowing your goods will actually leave on time can relieve some of the pressure.
