‘I’ve never seen anything like it’: chaos hits global shipping

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Off the coast of Los Angeles, more than two dozen container ships filled with exercise bikes, electronics and other highly sought-after imported goods have been idling for as long as two weeks.

In Kansas City, farmers are struggling to ship soybeans to buyers in Asia. In China, furniture destined for North America piled up on factory floors.

Across the globe, the pandemic has disrupted trade to an extraordinary degree, driving up the cost of transporting goods and adding a new challenge to the global economic recovery. The virus has destabilized the choreography of moving goods from one continent to another.

At the center of the storm is the shipping container, the workhorse of globalization.

Americans stranded at home have sparked a surge in factory orders in China, much of which is transported across the Pacific in containers – the metal boxes that carry goods in towering stacks atop huge ships. As households in the United States have filled bedrooms with office furniture and basements with conveyor belts, shipping demand has outstripped container availability in Asia, leading to shortages there, as have boxes. piling up in American ports.

Containers that carried millions of masks to countries in Africa and South America at the start of the pandemic remain there, empty and unpicked, as shipping carriers have concentrated their ships on their most popular routes – those connecting North America and Europe to Asia.

And in ports where ships call, carrying cargo for unloading, they are often stranded for days in floating traffic jams. The pandemic and its restrictions have limited the availability of dockworkers and truck drivers, causing delays in handling goods from Southern California to Singapore. Every container that cannot be unloaded at one location is a container that cannot be loaded elsewhere.

“I’ve never seen anything like it,” said Lars Mikael Jensen, head of the Global Ocean Network at AP Moller-Maersk, the world’s largest shipping company. “All links in the supply chain are strained. Ships, trucks, warehouses.

Economies around the world are absorbing the ripple effects of disruption on the seas. The higher costs of transporting US grains and soybeans across the Pacific threaten to raise food prices in Asia.

Empty containers are piled up in the ports of Australia and New Zealand; containers are scarce in the Indian port of Kolkata, forcing electronics manufacturers to haul their cargo over 1,000 miles west to the better supply port of Mumbai.

Rice exporters in Thailand, Vietnam and Cambodia are waiving some shipments to North America due to the inability to secure the containers.

The chaos on the seas has proven to be a boon for shipping companies like Maersk, which in February cited record freight prices as reporting more than $ 2.7 billion in pre-tax revenue in the last three months of 2020.

No one knows how long the upheaval will last, although some experts speculate that containers will remain scarce until the end of the year as the factories that make them – almost all in China – scramble to meet demand. .

Since their initial deployment in 1956, containers have revolutionized commerce by allowing goods to be packed into standard size containers and hoisted by cranes onto rail cars and trucks, reducing the globe.

The containers show how flat screens made in South Korea are moved to factories in China that assemble smartphones and laptops, and how those finished devices are shipped across the Pacific to the United States.

Any hitch means a delay and additional costs for someone. The pandemic has disrupted every part of the trip.

“Everyone wants it all,” said Akhil Nair, vice president of global carrier management at SEKO Logistics in Hong Kong. “The infrastructure cannot keep up.”

More than ten years ago, during the global financial crisis, shipping companies saw their business rampage.

As a mysterious virus emerged in China early last year – prompting the government to shut down factories to contain its spread – the shipping industry braced for a replay. The carriers halted their services, idling many of their ships.

Yet even in the midst of the recession, orders have risen for protective gear such as surgical masks and gowns used by frontline medical staff, much of which is made in China. Chinese factories grew and container ships transported their products to destinations across the globe.

Unlike the financial crisis, when the economic recovery took years to strengthen, Chinese factories made a strong comeback in the second half of 2020, generating strong demand for shipping.

While shipping companies deployed any ships that could float, they focused on the most popular routes – especially China to North America.

The pressure mounted as Americans reshaped their spending. Deprived of vacations and meals at restaurants, they buy video game consoles and pastry mixers. They have equipped their homes for remote working and distance learning.

Exercise equipment shipped by container from Asia to North America more than doubled between September and November, compared to the same period a year earlier, according to an analysis by Sea-Intelligence, a research firm based in Copenhagen. Shipments of stoves, ranges and cooking equipment nearly doubled during this period. Disinfectants have increased by over 6,800 percent.

“Everything that developed was essentially induced by a pandemic,” said Alan Murphy, the founder of the research group.

Overall, the volume of world trade fell only 1% in 2020 compared to the previous year. But that doesn’t reflect the course of the year – with a drop of over 12% in April and May, followed by an equally dramatic reversal. The system couldn’t adjust, leaving containers in the wrong places and pushing shipping prices to extraordinary levels.

Peter Baum’s New York-based Baum-Essex company uses factories in China and Southeast Asia to make umbrellas for Costco, cotton bags for Walmart, and ceramics for Bed Bath & Beyond. Six months ago he was paying about $ 2,500 to ship a 40-foot container to California.

“We just paid between $ 6,000 and $ 7,000,” he said. “This is the highest freight rate I have seen in 45 years in the business.”

In early September, he waited 90 days to secure space on a ship for a container of wicker chairs and tables.

Another US importer, Highline United, which imports women’s shoes from China and Hong Kong for brands like Ash and Isaac Mizrahi, is paying more than five times its regular price for shipping.

“It’s a classic supply and demand problem,” said Kim Bradley, chief operating officer of the Dedham, Massachusetts-based company.

In the twin ports of Los Angeles and near Long Beach, unloading has been slowed by a shortage of dockworkers and truck drivers, as the virus has made some sick while forcing others to quarantine.

“The volume backlog is expected to remain until mid-summer,” Port of Los Angeles manager Gene Seroka said at a recent board meeting.

Ships off Los Angeles have exhausted available anchor points, resorting to so-called fin boxes – areas where they float freely, like planes flying over crowded airports.

Major consumer brands – from sportswear maker Under Armor to Hasbro to game and toy maker – have faced shipping bottlenecks.

Peloton says port congestion is a factor behind its delays in delivering its high-end stationary bikes. To shorten wait times, Peloton announced plans to invest $ 100 million in air travel and expedited ocean freight.

But even in normal times, air freight costs about eight times the cost of sea freight. Most air cargo is carried in the holds of passenger jets. As air travel is very limited, so are the available cargo locations.

Some shippers have revamped their schedules, stopping in Oakland, Calif., 400 miles north, before continuing to Los Angeles. But the containers are stacked on the ships in configurations defined by their destinations. A sudden change in plans means moving the stacks like a Jenga game.

And the Port of Oakland faces its own pandemic issues. Dockworkers are at home caring for children who are not in school, said Bryan Brandes, the port’s maritime director.

“Normally, ships arrive directly in Oakland,” Brandes said. “Right now we have seven to 11 ships at anchor.”

The dysfunction of the American West Coast has caused problems thousands of miles away.

Scoular, one of the largest agricultural exporters to the United States, loads grains and soybeans into containers at terminals like Chicago and Kansas City, then ships them by rail to Pacific ports en route to the Asia.

With container prices charged in Asia, ocean carriers are increasingly unloading in California and then immediately returning empty boxes to ships for return to Asia, without waiting for grain or other US exports to be loaded. . This has left companies like Scoular scrambling to secure the passage.

Delays in ports frequently return Scoular’s containers to different ships, forcing the company to redo customs formalities – another delay.

“It’s the reliability of schedules that is the problem,” said Sean Healy, director of carrier relations at Scoular. “It’s a global problem.”

In recent weeks, ocean carriers have aggressively moved empty containers to Asia, increasing their availability there, according to data from Container xChange, a consultant in Hamburg, Germany.

Some experts speculate that as vaccinations increase and life returns to normal, Americans will once again shift spending – from goods to experiments – reducing the need for containers.

But even if that happens, retailers will start to stockpile for the holiday shopping spree.

The congressional stimulus spending plan may generate hires that could lead to another wave of buying, as previously unemployed people replace aging appliances and add to their wardrobes.

“There could be a whole other subset of consumers who haven’t been able to consume,” said Michael Brown, container analyst at KBW in New York City. “You have potentially been facing shortages for some time.”

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