Supply Chain Shipping Hell: “Just Get Me A Box” Says Logistics Manager
Two years ago, the cost for a 40-foot container to transport goods from Asia to the U.S was under $2,000. Today it’s as much as $25,000.
When I saw this Bloomberg headline I thought it was about cardboard boxes. Instead, ‘Just Get Me a Box‘ is about shipping containers.
It’s mid-August, and logistics manager RoxAnne Thomas’s phone won’t stop pinging. Her faucets, sinks, and toilets are waylaid near Shanghai, snagged in Vancouver, and buried under a pile of shipping containers in a rail yard outside Chicago.
“Every step of the process, there’s still backlog,” said Thomas, 41, in one of several interviews from late July through August. “The beginning of the supply chain in China—I don’t think that’s going to get better for a year.” And the outlook more broadly? “A year and a half before things are truly back to normal.”
Although the pandemic has shuttered factories and shaken supplies of raw materials, Thomas’s chief challenge is freight, and it starts with what used to be cheap, plentiful commodities: shipping containers.
Two years ago, a 40-foot container cost less than $2,000 to transport goods from Asia to the U.S. Today the service fetches as much as $25,000 if an importer pays a premium for on-time delivery, which is a luxury.
“The fear is we’re ordering all this stuff for demand, and the demand is going to fizzle out before the product gets here,” Thomas says. With summer winding down, the big test of the global trading system’s resilience might still be ahead.
Commodity Shipping Rates Post Biggest Daily Gain in a Decade
Bloomberg also reports Commodity Shipping Rates Post Biggest Daily Gain in a Decade
Average rates for giant Capesize bulk carriers — which can carry products like coal, iron ore and grains — jumped by $6,700 a day on Monday, the most since 2010, as owners continue to benefit from strong demand for raw materials. The rally extended Tuesday, pushing the daily rate to almost $53,700, the highest level in 11 years, Baltic Exchange data show.
Parabolic Rise in Shipping Rates
Also consider this September 16 report: Ship Owner Genco Says Commodity Freight Rates Set to Spike.
Spot rates for container ships to move manufactured products have surged for 20 straight weeks and now stand 731% above their seasonal average over the prior five years, according to Drewry Shipping. John Wobensmith, the president and chief executive officer of Genco Shipping & Trading Ltd., said that prices to move commodities — which have already rallied sharply this year — may follow a similar cycle in the coming years with not enough ships being built to meet demand.
“You do get to a point, and you’ve seen this in containers, where you hit a certain utilization rate and you start to go parabolic on rates,” he said in an interview. “I think we’re getting close to that period.”
Beige Book Comments
San Francisco Fed: Prices rose substantially over the reporting period. Although lumber prices have dropped significantly, prices for other building materials, such as metals, cement, and wallboard have continued to climb. Other price increases were noted for energy, information technology, textiles, airline tickets, and agricultural products, such as fruits, meats, and seafood. The reported biggest drivers of these price hikes included higher shipping and logistical costs, continued supply chain disruptions, and rising labor costs.
Atlanta Fed: District contacts continued to cite increasing nonlabor costs, especially for steel and freight, with multiple contacts referencing record increases in shipping container rates. The price of lumber stabilized but remained elevated relative to pre-pandemic levels, while mentions of increased food product costs became more widespread. Contacts cited the ability to pass through price increases with greater frequency, and with minimal resistance.
Richmond Fed: Demand for cars continued to exceed supply while inventories were low, leading to lower carrying costs and increased margins for auto dealers. Clothing sales rose, and demand for furniture and home goods remained strong. Retailers noted shortages of and increased lead times for merchandise, particularly on foreign-made goods. One contact reported refunding several bridal parties because dresses did not arrive on time for weddings. Many retailers were able to maintain margins despite increases in costs of products and shipping.
National Comments: The other sectors of the economy where growth slowed or activity declined were those constrained by supply disruptions and labor shortages, as opposed to softening demand. In particular, weakness in auto sales was widely ascribed to low inventories amidst the ongoing microchip shortage, and restrained home sales activity was attributed to low supply.
The Beige Book is a summary of economic activity in each of the Fed’s 12 regions. It was released on September 8 and come out approximately 2 weeks before the Fed meets to set interest rate policy.
The Fed’s FOMC rate-setting committee meets again on September 21-22 with the announcement on the 22nd.
What About Cardboard Boxes?
August 6 Fortune: Online Retailers Get Boxed in by Higher Cardboard Prices
April 6 Supply Chain Dive: Cardboard Prices Reach Record High Amid e-Commerce Demand
July 9 DC Velocity: Strong Demand, Rising Costs Affect Packaging Strategies
The price of corrugated products was rising through the spring, with some of the country’s largest producers of containerboard—the material used to make corrugated boxes—announcing increases of $50 to $70 per ton. The cost of packaging supplies in general was rising too, increasing by double-digits in many cases, according to government data and industry groups that track packaging demand. John Blake, senior director analyst with consulting and research firm Gartner, says changes in demand for packaging throughout the pandemic, combined with volatile supply chain activity last year, are driving the increases and shining a spotlight on the need for shippers to better manage sourcing strategies and packaging processes.
Shipping Rates Peaked?
In contrast to John Wobensmith’s call for shipping rates to go parabolic, Hapag-LLoyd AG says Spot Rates Have Peaked.
One of the world’s biggest shipping lines has decided to stop increasing spot freight rates on routes out of Asia to Europe and the U.S. as it sees an end to the rally that has seen prices hit records.
Hapag-LLoyd AG thinks spot rates have peaked and further increases are “not necessary,” according to Nils Haupt, the Hamburg-based company’s head of corporate communications. The move comes after French rival CMA CGM SA last week froze rates, saying it was prioritizing long-term relationships following a rally that has seen some spot rates jump more than sixfold in the past year.
While many shipping lines have taken advantage of rising spot prices, the rally is expected to “come to an end at some point,” said Jim Bureau, chief executive officer of logistics digital platform provider JAGGAER.
“The supply chain is extremely fragile right now,” he said. “How much more cost can carriers practically take on without increasing financial risk on both buyer and supplier?”
Prices Already Went Parabolic
This setup reminds me of the spike in lumber.
Prices have already gone parabolic. The question at hand is when and how fast prices crash.
But even if shipping costs fall in half, they will remain very elevated June 2020.
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Sat, 09/18/2021 – 12:30
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