How much do you think about shipping? I think about it all the time. And I recommend that everyone in our industry start, because shipping challenges reverberate throughout the manufacturing and distribution chains, and beyond. It isn’t just COVID circa 2020. It’s Brexit, the Suez Canal blockage, a new COVID outbreak at one of the busiest ports in the world, and other less headline-grabbing events disrupting shipping. The ripple effect of these disruptions will impact everything you make, buy, and sell for quite some time.
And it isn’t just your manufacturing operation. A new home dishwasher or custom-designed furniture? That’s a wait too, possibly for months. With consumers ordering more—everything—since the pandemic started, shipping demand is at an unprecedented high. The pandemic is likely to be long over before the shipping delays end. For the next year or two, we’re all going to have to plan much farther in advance than we used to, for everything.
We know what happened to manufacturing and shipping when the pandemic first emerged in China at the end of 2019. The reliable flow of cargo ships in and out of ports in China came to a halt, which impacted availability of cargo ships world-wide. With over 80% of global trade transported by sea, this caused problems everywhere. The date when a shipment would depart, let alone arrive, became a great unknown. Air shipping rates skyrocketed, if you could even get a shipment on a flight. With passenger travel at a standstill, cargo space in the belly of those planes disappeared by around 90%. Prices to ship by air rose correspondingly.
The shipping blockage is not just in China, it’s everywhere. This recent article paints a vivid picture. As things start opening back up, everything is jammed at the ports. COVID protocols around the globe are slowing things down, just as the volume of shipping is trying to resume
Once a ship gets to its destination, it has to drop anchor and wait for a berth, which can take two to three weeks; it can then take another five to seven days to unload. Think of these as floating traffic jams. Not all ships have one final destination, many have multiple ports of call. Using the main trade seaport in France, Marseille Fos Port as an example, sometimes the ship may dock first in Fos, where they wait several weeks for a berth, and then travel 50 km to Marseille, where they have to wait again. The snowball effect causes massive delays. Similar delays take place once the cargo is landed, with trucking, rail, and air cargo jammed.
And it’s not just container space. There is also a shortage of wood pallets, the platforms used to transport everything that gets shipped. This is a combination of pricing pressure due to the price of lower grade lumber and nails drastically increasing, and a shortage of labor to build them. Container chassis, the specially designed trailer that transports containers to and from ports, terminals, and warehouses, are in short supply. This problem becomes more acute the further your facility is away from port because they can use it for one to two shipments a day, if you are close to port, but you give up that opportunity when you let someone take it further away.
Container ship companies are trying to increase capacity, but it takes several years to build and launch a new ship. Recently negotiated shipping contract rates are 50% higher. People used to have contracts with shippers for a set rate for a set number of containers. Now, shippers are not accepting contracts unless they are at market rate, which is high, and you are a great customer. The cost of sending a 40 ft. container on the Asia to North Europe route recently surpassed $11,000, a record, and startling when compared to the cost last October, $2,000. For one 40 foot container shipped from Dalian, China to Hamburg, Germany, the price in January was USD $7,500, $7,900 in Feb, $8,650 in March, and $9,688 in April. In June the price for the same amount of cargo space is an astonishing $15,000.
Consumer spending has been up, further increasing the competition for cargo space. As things open up, people will shift some of their spending to services rather than goods, which will relieve some pressure; however, the shipping backlog is still there and will be for some time.
What does this mean for the nutraceutical industry? Buy now what you need for the rest of the year. That material you need for Q4? Yes, that too. Ingredients that used to take a month from origin in China to our warehouse in the United States are now taking two months and some extreme cases up to three months. A partner of ours reports that it now takes more than 50 days transit time from Dalian, China to Hamburg, Germany, which used to take 40 days. It now takes 60 days from Dalian to FOS, France, up from the previous 52 days. The backlog is real and until that’s resolved, delays will continue. Best case is shipping delays might let up by the end of year, just in time for holiday-related disruption.
Through 2021, it is important to plan much further ahead. For anybody planning to go back to 'just in time' ordering, the absolute earliest possibility for materials to reach you reliably is the second quarter of 2022. But it’s more likely to be 2023 when you can reliably follow that practice.
Wilson Lau is vice president at Nuherbs.