With transportation networks around the world overburdened, the price of shipping things from one place to another keeps going up. But when it comes to the cost pressures companies are facing, those price increases are only part of the problem.
The Covid-19 crisis has thrown a wrench in global supply chains. Largely stuck at home and unable to spend money on meals out, travel and other services, consumers loaded up on goods instead. Many companies didn’t see it coming and, expecting demand to fall instead, cut back on orders and production, draining their inventories. Meanwhile, the pandemic put additional constraints on shipping, as efforts to contain its spread, such as the quarantine restrictions, slowed the movement of goods.
The result has been an awful mess, and one that doesn’t look as if it will be resolved anytime soon. The blocking of the Suez Canal by the container ship Ever Given created a global supply traffic jam early this spring, and was followed by a Covid outbreak that cut operations at China’s busy Yantian port to 30% of normal levels.
which once ran on the slogan “When it absolutely, positively has to be there overnight,” suspended about 1,400 customers of its Freight shipping service in June in an effort to clear its congested network.
The cost to transport goods has naturally gone up, in many cases by a lot. The average price world-wide to ship a 40-foot container overseas reached $8,795.77 as of July 8, according to Drewry Shipping Consultants, which is up 333% from a year earlier. Once that container comes off the ship there are additional shipping costs, and they, too, are rising. In June, prices for transporting goods by truck were up 15% from a year earlier, according to the Labor Department, while prices at freight forwarders, customs brokers and other businesses that arrange freight and cargo for transportation were up 58%.
For many businesses, however, shipping delays and long lead times amount to a bigger problem than rising transportation prices.
Only about 39% of container ships around the world were on time arriving at ports in May, according to Sea-Intelligence, compared with about 75% in May last year and about 80% in May of 2019. Difficulty hiring and retaining truck drivers and other transportation workers in the U.S. is compounding the problem. Business surveys conducted by the Institute for Supply Management and the Federal Reserve Banks of New York, Philadelphia and Dallas show a massive slowdown in supplier delivery times. In the week ended July 13, there were slight or outright shortages of available trucks from 18 of 23 specialty crops markets, according to the U.S. Department of Agriculture. In the comparable week in 2019 just two of those markets registered any shortage.
Shipping delays can lead to lost sales: Nothing is quite so costly as the shipment of Christmas sweaters that arrives in January. Ordering sooner helps, and some companies are doing just that—a fabricated metals producer quoted in the ISM’s June manufacturing report said that customers were already placing orders for the fourth quarter of this year and the first quarter of next “due to global supply chain issues.” There are higher costs here, too, including the risk of guessing wrong what demand will look like many months from now. The longer goods spend getting shuttled from one place to the next counts as a cost as well.
Someone has to pay, and if businesses have their druthers that someone is someone else. To the extent they are able to pass costs along, inflation will pick up even more. To the extent that they are not, profit margins will be thinner than they might otherwise have been.
Eventually the problems businesses are facing transporting goods should resolve themselves, but eventually might not be coming soon. Consumer demand remains strong—adjusted for inflation, sales of goods excluding food and energy items were 21% higher in May than in the same month of 2019, according to the Commerce Department. Plus businesses need to refill badly depleted inventories. That sets the stage for overburdened transportation networks to remain overburdened in the months ahead, and for the headaches to keep on coming.
Write to Justin Lahart at firstname.lastname@example.org
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