To no one’s surprise, businesses that depend on overseas shipping have had difficulty from a recent onslaught of delays, shortages, and record-breaking freight costs. Shipping conditions have caused make-or-break setbacks for businesses worldwide with multiple overlapping causes. The cause of record high freight is complex with a myriad of factors. These factors span as far and wide as pandemic supply shortages and cultural observances; they all contribute to the current state of the shipping industry.
Here are the major players in freight cost changes and shipping industry changes:
- The Pandemic Changed Things: In 2020, the industry saw worldwide travel restrictions and vast fluctuations in shipping demand, both of which contributed to a massive backlog of goods waiting to ship. This caused a ripple effect of port congestion, equipment shortages, and port scheduling conflicts, specifically involving the number of blank sailings – ships sent without cargo. After the worldwide lockdowns last spring, ports, and carriers have managed to make a dent in the backlog of delayed shipments, in part by stopping blank sailings. However, reports confirm that blank sailings have now resumed as usual, despite the number of back shipments still needed. Blank sailings worsen the problem by reducing the goods being shipped while still adding to port congestion.
- Roll Pools: Despite frequently empty vessels still launching, the industry has experienced high numbers of shipment rollovers, creating roll pools, which further delay shipping and increase freight costs. In addition, speculation has arisen regarding the possibility that ports may be artificially exacerbating rollover by purposefully overbooking and selling space to the highest bidder rather than honoring each contract. Port representatives have denied any artificial hike in price or demand, but many purchasers remain unconvinced.
- Port Congestion: Typically, vessels would come and go at staggered intervals based on the needs of individual countries and companies. Now, however, merchants are scrambling to make up for lost time and revenue. This scramble creates a lot of traffic. Anyone who has been in a traffic jam knows the frustration of stalling only a short distance from your destination. Port congestion is the same. Each port can only process a limited number of shipments at a time due to limited time, room, and workforce, and bottlenecking like this slows the process down even further.
- Equipment Shortages: The influx of shipping demand described above has also led to a shortage of necessary equipment from truck chassis to containers – and even to vessels themselves. Without the required equipment to ship goods, the pile-up of delayed shipments will only continue.
- Trucker Turn Time: Due to port congestion and equipment shortages, trucks have to spend more time waiting at the port before shipments are sent. This adds yet another frustration in the shipping industry as fleets of trucks wait for goods that can’t be sent.
- Weather Conditions: With the existing strain on overseas shipping, the ever-present threat of adverse weather adds another layer of difficulty. Recently, for example, China had to shut down railways and ports due to Typhoon In-Fa. Meanwhile, officials are on the lookout for Atlantic storms (such as hurricanes) that may affect the American East Coast in critical areas such as New York, Florida, and the Gulf of Mexico.
- Chinese New Year: Each year, businesses see ripple effects from Chinese New Year as labor typically stalls while workers observe the holiday. Traditionally, the Chinese New Year is celebrated by returning to one’s ancestral home, necessitating time-off for travel in the days leading up to and following the holiday. After last year’s pandemic restrictions prevented many from returning home, authorities predict even more will travel than usual this year.
Record High Freight
The current perfect storm of factors has led to record high freight costs, but never fear, the situation will calm down eventually. While no one knows exactly how long things will take to straighten out, ultimately, the log-jammed conditions will normalize, storm season will pass, and everyone will be back to business. What can you do in the meantime? Try to add buffer time in your orders and shipments to allow for delays, explore various modes of transportation, price compared to find the best contracts, and consider storing delayed goods in a warehouse setting to preserve quality and lessen their time at port. With some planning and management, the shipping process can get smoother for everyone.