As the world tries to get on its feet after the pandemic, growing congestion at ports is putting global supply chains under pressure.
Rising demand combined with pandemic restrictions have seen ports around the world overloaded. The impacts are rippling out across the wider economy and society but is this just a one-off crisis, to be solved with the end of the pandemic, or is it something more serious? If so, how can it be solved?
About port congestion
Port congestion occurs when ports find themselves overloaded. Incoming shipping may be forced to wait in line for a birth at the port to appear. When waiting times go up, the entire system struggles. Shipping companies see their costs rise; goods miss connections. A problem in one part of the world has ripple effects across the rest of the world.
Unfortunately, over the last year, congestion has reached crisis point. In some parts of the world average port wait times exceed 50 hours. In Los Angeles, port managers warn it would take a month to clear the backlog as demand for freight imports surges. West coast ocean rates have climbed by more than 5%.
Container carriers are reportedly cancelling stops in Europe due to congestion. In the UK Brexit, together with the pandemic has created chaos at ports.
The inevitable result is that prices are rising. Container spot rates from Asia to Europe rose by 130 over the course of 2020.
Carriers are being forced to focus on high-rate space. Those who are prepared to pay more will get a spot. This is putting pressure on suppliers who are struggling to absorb these costs. The result threatens the availability of products, and sees prices rising for certain goods.
The damage is felt by everyone. Exporters lose out on overseas clients, perishable goods spoil while stuck waiting to dock, customers are left waiting and costs rise across the board.
A perfect storm
The problem stems from a perfect storm of economic problems, health restrictions, labour shortages and a lack of equipment. Many of the problems are longstanding. Labour disruption and a lack of competition in shipping keeps prices high and leaves many suppliers with little choice other than to pass costs onto their customers.
However, the pandemic has created a host of problems which create pressure points across the system. With governments around the world imposing lockdowns, retailers have been forced to close or scale back operations. With their warehouses full or closed, products have been left sitting at ports, blocking space for incoming arrivals.
Ports themselves have been forced to close or operate at reduced capacity, reducing their operating capacity and forcing them to keep shipping waiting.
At the same time demand for shipping from Asia has surged. China, which imposed a swift and strict lockdown, has picked up the slack of global manufacturing. With factories closed in the West, demand for freight from the East has surged. Those countries which have capitalised on demand from those which remain in lockdown.
In Britain, the problem has been exacerbated by Brexit. Ports were in disarray as a Brexit cliff edge loomed and COVID rates surged across the country. Cargo entering Britain has plummeted while some carriers are actively avoiding Britain due to fears over red tape.
What can be done?
Questions now turn to what can be done about the problems. Some analysts have suggested firms may rethink their manufacturing strategies and shift production away from Asia. Others, however, see this as a one-off situation, caused by pandemic disruption.
Even so congestion remains a serious underlying problem. Solving it relies on addressing the key underlying problems. Part of the issue is down to a lack of competition in shipping. The low number of shipping carriers and suspicions of collusion between carriers in setting prices, leave suppliers with relatively little choice.
Individually, cargo owners can feel helpless. Diversification of ports and carriers and the use of virtual warehouses are often mentioned as ways they can take more control over their supply chains. Ultimately, though, many will feel at the mercy of a system which is overwhelmed.
The one consolation is that everyone is in the same boat. For now, suppliers are trying to hunker down and ride out the storm. In the longer term, though, the industry needs to find an answer to this most pressing of problems.
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