You may think that all the rising costs of groceries, and just about everything these days, is primarily a hit on consumer pockets.
The truth is that the shortage affects trading companies, retail businesses, and retail buyers, but the cost hikes start with the manufacturers.
Manufacturers are forced to eat these costs for their business. Most people don’t know this because all they see is prices going up in stores, but the price hikes began well before this.
The reason for this cost rise stems from the slowdown in the supply chain, and most importantly, the shipping container costs manufacturers have to pay.
Why have shipping containers become so expensive? The answer is that there just aren’t enough containers available to ship.
Why Is There a Global Shipping Container Shortage in 2021?
The steep rise in the cost of shipping containers began with the Covid-19 pandemic. The lockdowns initiated by the pandemic put a screeching halt on the supply line in March of 2020.
When millions of people were suddenly put on unemployment, the economy took a hit. Items being shipped had to be delayed for fear of Covid spread, and there wasn’t as much need for shipping overseas.
Few businesses remained open, and there was less consumer demand. This resulted in a slowing in the supply chain and shipping containers being halted from shipping.
The Suez canal blockage in March of 2021 also played a major role in slowing down shipments. This created major delays by blocking out all traffic to hundreds of shipping vessels through the Canal for days.
This and many other problems have emerged during the pandemic that has not been solved promptly because of worker shortages. Today, there are still fewer available truckers and workers to deliver and offload shipments.
Many factories temporarily closed during the lockdowns, which caused their containers to be stopped at ports.
Why Manufacturers Are Eating Costs on 10x Shipping Container
As shipping was limited, shipping companies reduced the number of ships to stabilize the cost. Shipping lines would continue to lose money delivering shipping vessels with little cargo to deliver, so they reduced the number of vessels to maintain ocean freight.
From April through June of 2020, most companies limited economic activity. It wasn’t until July that world economic activity started to recover.
China was able to recover its production rates at an earlier stage than the rest of the world because of government funding and having been forced to go into lockdown earlier. This increased exports from China. This also encouraged other businesses to start producing in China, which increased exports more.
As shipping vessels had decreased during the lockdowns, they were not able to collect empty containers left at ports due to a lack of chassis and other necessary equipment.
A lack of workers has been the prime reason why the supply chain has been slowed down. With too few truckers delivering and workers unloading shipping containers, these ships were suddenly stuck at the dock or stranded because the docks were already full.
Shipping containers around the world are now seeing a 6-month delay in delivery, many of which haven’t even gotten onto a ship yet for shipment. This supply chain problem has become a major threat to businesses reliant on these trade transport lines.
Manufacturers specifically have been forced to eat the rising costs of shipping containers during this supply crisis because they can’t afford to pass the costs down to their buyers without losing business.
If manufacturers want to get their products shipped, they have no choice but to deal with this demand. They are in competition for shipping containers.
Rising Container Rates From China
There are roughly 900K 20-foot shipping containers sent from China to North America per month.
Current container rates from China to the U.S. have reached highs above $20,000 per 40-foot box, according to a CNBC report on the global shipping container shortage of 2021.
Shipping companies have begun charging as much as 10 times the usual cost for shipping cargoes.
This cost has risen higher due to increased retailer orders ahead of the peak shopping season, with a lack of workers to deal with shipping demands. Many hopeful shoppers are now realizing they may not be receiving their presents on time. This is creating a sudden soaring demand. The supply chain is already so far behind schedule that this has created a bottleneck effect in supply that will likely be noticeable during the holidays.
When Will Shipping Container Prices Go down?
These costs aren’t expected to go back down until mid-2023, with high rates lasting through the 2022 Chinese New Year. There is an expected shipping cost increase during the peak shipping season this year, so things will probably get worse before they get better.
The current crisis in shipping containers has highlighted weaknesses in our supply chain already under pressure before 2020. Manufacturers are going to continue eating these costs, despite some of it spreading down the line.
Economists and manufacturers didn’t see all these unsuspected factors coming into play, which has put many companies out of business.
Continued spikes in Covid cases and continued low employment rates mean these costs and delays could last longer than expected.
But what does it mean for businesses going into the future?
Lessons from Container Shipping Delays 2021
This isn’t all bad news. Businesses have had to relearn the dos and donts of business financing in order to stay ahead and ensure profit. Many manufacturers and entrepreneurs are learning how to adapt by doing things such as paying business taxes quarterly to be prepared for more unruly situations.
There are many lessons to be learned from the current costs being paid for shipping containers globally. This supply and demand issue has forced industries and entrepreneurs to become more resilient.
Businesses that are prepared have a better chance of adapting to these unforeseen risks and finding opportunities in every situation.