The uneven post-Covid-19 economic recoveries, shortage of shipping containers, space crunch on the vessels, and skyrocketing freight costs have resulted in severe disruptions across the supply chain.
Author: Sanjay Bhatia, Co-founder and CEO, Freightwalla
In 2020, we witnessed a deadly pandemic bringing the supply chain and world trade down to their knees. The knock-down effect on consumer activity, overall global trade, and the economy was so severe that it triggered a host of complex challenges for the industry. While the unlock phase is gathering momentum globally as trade movements are gradually picking pace, we are not yet out of the woods and nowhere close to the pre-covid trade levels.
While geography, trade restrictions, and the requirement of exports across countries are highly determinant for impact on global trade, the Covid-19 pandemic triggered a worldwide health and economic crisis with wide-ranging implications, most of which are expected to have long-term repercussions on trade and economy.
The uneven post-Covid-19 economic recoveries, shortage of shipping containers, space crunch on the vessels, and skyrocketing freight costs have resulted in severe disruptions across the supply chains. Regardless of EXIM Trade , the shipping and logistics sector is evolving due to several trends affecting world trade.
According to The Ministry of Commerce and Industry data, Indian exports (Non-petroleum and Non-Gems and Jewellery) stood at USD 25 billion, while imports (Non-Oil and Non-Gold) at USD 29 billion in August 2021. It records a positive growth of 32% in exports and 37% in imports from the same period last year.
High Freight Rates
The current market scenario has led to tremendous distortion in demand-supply dynamics globally, resulting in exorbitant freight rates that have risen by 3-5 times. The average price for a 20-foot container from India to the US was 2000 USD early this year, which has now gone up beyond 10,000 USD. Besides, it has also led to a significant waiting time of 10-20 days for shippers to get the required space. We are witnessing some improvements from the shipping lines where they have started freezing spot rates that were increasing every week until now. A significant relief can be expected mainly by 2022 as only a couple of shipping lines have implemented this freeze.
Considering there is still significant uncertainty on container availability for the coming months, traders need to be mindful of making advanced cargo bookings with some premium pricing backed with proper planning to ensure seamless trade.
Congestion at Major Ports
Demand has outstripped the availability of containers globally; this conundrum has been around for quite some time now. At present, every supply chain link is overwhelmed owing to congestion at major ports across the world. Delays at the ports are causing a supply-demand gap for commodities as well as containers. A massive number of containers are parked across the ports of China, the US, and Europe, leading to acute container shortage. While Asia seems to be the worst affected, continents like Europe and America have also been combating the rising deficit.
About 55 percent of the container fleet is currently occupied in transit or awaiting shipping space, as against an expected average of approximately 30 percent, leading to an acute shortage of container availability across the globe, including India. The shortage of trucks transporting goods between factories and ports have further aggravated the crisis as the equipment is getting stuck for a longer period.
The restricted trade movements, and a waiting list on international ports have also given rise to a new trend wherein, because of an acute shortage of 20ft containers, shippers are stuffing their cargoes in the 40 footers. In other words, shipments for which a 20 ft container would have been a viable solution are being accommodated in 40 ft containers, resulting in a steep rise in the latter’s usage.
Heavyweight vs Lightweight Cargo
In the wake of the pressures of container shortage and space crunch on vessels, shipping lines have been prioritizing lightweight cargo over their heavyweight counterparts for increased fuel efficiency and profitability. While this has further contributed to the demand-supply mismatch, it has also led to an acute export crisis in heavyweight goods such as granite, ceramics, stones, etc.
Besides deprioritizing heavyweight cargo, many exporters have also stopped exporting low-value cargo such as low value chemicals, tiles, and stones, leading to high freight rates and unprecedented delays making them unviable for sale at the destination. If it continues in the long run, it is likely to hit the trade growth numbers significantly.
Advanced Planning of Shipments – need of the hour
Generally, ocean shipments are planned 8 – 10 days before departure. In the light of current industry challenges, shippers are struggling to adhere to the needs and timelines of their clientele. Under these circumstances, exporters are advised to plan their shipments a month in advance with freight forwarders or shipping companies to get the desired space on the vessel. While it might be difficult for some industries to do prior planning due to the nature of the cargo, digital freight forwarding tools can still help them understand pricing patterns and container availability trends through predictive data analysis. Managerial investment at the planning level would significantly lower the load on the supply chain infrastructure and gradually smoothen the entire process.
Source : maritimegateway