As countries emerge from the coronavirus pandemic, economies everywhere are restocking their shelves, adding to inventories, and playing catchup. Nations are buying corn, liquid natural gas, tires, toilet paper, and copies of Vice President Kamala Harris’ book Superheroes Are Everywhere (perhaps out of fear of being slapped with sanctions). But supply chains are coming under pressure, creating a bottleneck throughout the world that has resulted in a shipping container crisis. Be it higher premiums or overfilled boats, present-day conditions have never been seen before, and the end result will be higher inflation – again.
A Drop in the Ocean
It is common for colossal vessels to drop cargo to the bottom of the ocean during their voyage to deliver goods. Accidents happen. However, as the industry abandons safety protocols to speed up its shipments and satisfy the receiving party, millions of dollars of cargo are falling into the sea and creating unique treasure for future generations to discover.
According to a new report from Bloomberg, more than 1,000 boxes have fallen overboard so far this year, disrupting international supply chains and impacting a broad array of companies, including Amazon, Tesla, and Walmart. Let's put this into perspective: Roughly 3,000 containers dropped into the water during all of 2020.
But what is happening during these adventures? One of the most significant factors is that these vessels have gotten larger in recent years, prompting companies to stack their containers higher than ever before. It does not help that they are operating at total capacity. The human element is also a critical component in this story. The business news network reports that stevedores are incorrectly locking boxes on top of each other to save energy and time. But a single mishap can endanger both the crew and cargo.
"When you combine that with potentially poor maintenance of twistlocks and cabling required to secure these boxes, then it’s an accident waiting to happen," said Jonathan Ranger, the head of marine Asia Pacific at American International Group Inc., at an industry event in Singapore.
Mother nature is another aspect that is playing a role in lost cargo. Gale-force winds, large waves, and other unpredictable weather events can jeopardize one trip, particularly if captains take risks and venture through the eye of the storm.
That said, since more than 200 million container boxes are sent out for delivery every year, a few thousand of them drowning underwater might not seem like much. Perhaps the dollar value would change a few minds as each box is worth approximately $50,000. Year-to-date, losses have exceeded $54 million.
Overall, industry observers say there is plenty the sector can do, despite record-high congestion on the seas. Even before the COVID-19 public health crisis, a standard recommendation was to invest and modernize port infrastructure. Whether this is something the sector or governments are willing to do remains to be seen, but as long as e-commerce balloons and the global economic recovery demands everything at the same time, the shipping container crisis will persist.
Higher Prices Everywhere and Nowhere to Save
Can this logistics crisis lead to higher consumer and producer prices? Companies are paying obscene premiums to get their stuff on these vessels, rates that are tightening importers’ margins. In early April, an Asia-to-North-America trade line was as much as $3,000 per 40-foot container, up about 50% from the same time a year ago. Shipping costs were already an enormous struggle for importers, but today’s logistical challenges prevalent across the globe are adding to the headache. Plus, with inevitable delays in supply chains, there are other costs everyone needs to be worried about.
The embarrassing Ever Given blockade in the Suez Canal in March potentially opened the international marketplace’s eyes to events unfolding in the water. But while more people may be aware of the shipping container crisis, there is not much the sector can do about it. Businesses cannot hire more ships because every firm is fully booked. New steel containers could be manufactured, but steel prices are at all-time highs, and there is nowhere to put these structures anyway.
Suffice it to say, international commerce has been turned upside down, affecting everyone, from consumers to producers to ships to stores. The only solution to alleviate this situation might be purchasing less stuff on Amazon. Until then, be ready to pay higher prices at websites and retail stores alike.
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Read more from Andrew Moran.
