Consumers could expect empty shelves or much higher prices for Christmas gifts this year as things deteriorate in ports around the world.
Robert Khachatryan, CEO of Freight Right Global Logistics, warns of the likelihood that everyone in the world will get presents for Christmas.
Speaking to an industry webinar in July, he tells them that if they wait until September to get their product on a boat to the United States, they likely won’t get any of their merchandise under a Christmas tree this holiday season.
His customers have been putting their holiday supplies on ships since May, and they’ll likely get them on the water even earlier next year.
“The big problem is, no matter how much you pay, there just isn’t enough space. The problem is that every ship has limited container space and is sold out within half an hour of being released. “
Khachatryan says that the shipping company, a vital link between the shipping companies and those who want to send and receive goods, turned into a kind of panicked trading floor in the 1980s and 1990s, with people screaming, yelling and answering the phone just to get a piece of the action.
With international shipping, things are now so bad that his company operates a night shift, just in case places on container ships become vacant overnight.
“You have to book the moment the booking is available. It is a question of half an hour in the truest sense of the word. If you flinch, it’s gone. “
The same thing happened for Christmas in New Zealand last Christmas, but University of Auckland deputy dean Tava Olsen, who specializes in supply chain management, says congestion in the world’s ports is likely worse than it was then.
Not only did last year’s problems with the Auckland ports’ delayed automation project continued this year and ships left at anchor for days, but there were several blockages in the global supply chain system.
First the container ship Ever Given blocked the Suez Canal, then a Covid-19 outbreak in the central Chinese port of Yantian caused further disruption, followed by a similar problem at the world’s third largest container port terminal, Ningbo Meishan, not to mention ongoing port congestion problems on the west coast of the country USA, where 40 container ships are anchored every day, waiting to dock and unload cargo.
To make up for lost time, international shipping lines have given up taking back some empty containers in New Zealand and are skipping ports outside of Auckland and Tauranga, causing significant problems for our exporters during their peak season.
Kuehne and Nagel New Zealand Managing Director Simon Dedman sums up the chaos with a statistic: In the months of June and July, only one of 60 ships arrived here on time.
Which shows that shipping reliability has not changed since Stuff previously reported it fell to historic lows of less than six percent in our major ports of Auckland and Tauranga.
Customs Brokers and Freight Forwarders Federation president Chris Edwards says if your inventory isn’t on a boat to New Zealand right now, it probably won’t get here by Christmas.
“It doesn’t matter if you’ve been naughty or nice, maybe you won’t get your stuff anyway. It just won’t be here in time. “
Edwards says the smart retailers, and probably the bigger ones, saw the congestion in Ports of Auckland last year and immediately started ordering their inventory for next Christmas.
The old philosophy of “just in time” becomes “just in case”: Once lean companies now order early and fill warehouses with overstock in order to avoid bottlenecks.
First Retail Group CEO Chris Wilkinson says things are almost going back to a time when retailers ordered products well in advance and stocked a lot.
The trend is that companies like DHL are massively expanding their warehouse activities with two new locations in Auckland and Christchurch and increasing their total area of 120,000 square meters by almost 10 percent or 12,500 square meters.
DHL Supply Chain Managing Director Matt Casbolt says these warehouses are not just four walls and a roof, they describe something much more sophisticated, almost like a factory floor.
They provide services such as packaging operations, some value added advertising and marketing services, as well as specialty storage facilities like ultra-cold freezers that are specifically designed for specialty products like vaccines. He will not resort to whether their warehouses will also be used to store Pfizer Covid-19 vaccine stocks.
Casbolt says there’s a lot of customer demand for warehouse space, but the big problem is finding space to build warehouses when there isn’t enough land for other uses like housing.
“She [customers] realize that to maintain their resilience they need to hold more stocks in the market and that obviously has an impact on us as the demand for this high quality storage space increases. ”
But building up inventories is not a panacea either. Earlier this year, Bloomberg reported that Toyota had managed to capture market share in the automotive industry by building semiconductor inventories for four months before chip shortages started crippling competitors.
Toyota is often closely tied to a “just-in-time” manufacturing philosophy, where companies hold less inventory and rely on supply chains to get components when they are needed.
After an earthquake in 2011, the company began to deviate from this strategy, demanding more transparency from its sub-suppliers to assess where its supply chain weaknesses were.
Toyota suddenly realized that it was uniquely vulnerable to a small group of chip foundries in Asia, and built up stocks of these chips along with reserve stocks of other critical products that could bring auto production to a standstill if a natural disaster or unexpected event wiped them out could put the picture.
While it helped Toyota with the chip shortage, things had changed by August when Bloomberg reported that Toyota planned to cut production by 40 percent and cease production at 14 factories.
Toyota was still fine on the semiconductor front, but now it has suffered delays across its supply chain thanks to Covid-19 outbreaks across Asia.
Edwards says these factory closings are one of the new items this year. Employees in Vietnam and other nations in Asia stay away from work because they are sick or are afraid of contracting Covid-19.
The products that we may order for Christmas, or the components that are included in them, are not made in the quantities we expected.
The wave of outbreaks across Asia has led contradictions like one of Bank of America Merrill Lynch’s top former strategists David Woo to wonder if all of these supply chain disruptions are as temporary as everyone first thought.
“My basic view is that Covid-19 is permanent [supply] Shock that it will stay here. It’s the new normal.
“By definition, if Covid-19 is going to stay here, it’s because it’s constantly mutating, which means you get outbreaks on a regular basis. This means that countries will close their ports on a regular basis.
“Don’t you think that this will increase delivery costs throughout the food chain? Of course it will. Globalization was such an important aspect of why inflation has been low for so long over the past 20 years. “
Edwards says policy decisions in response to these outbreaks could lead to further instability in the supply chain in the coming years.
When Covid-19 cases were discovered at Shanghai International Airport last month, strict quarantine requirements were transferred to staff, leading to a spike in layoffs and a sudden surge in air freight rates.
Casbolt believes many of the price signals being issued now will result in the building of many more shipping and warehouses that will go online in the years to come, and this should smooth things out. He notes that in the supply chain logistics industry, things often move from undersupply to oversupply.
“There will always be supply chain shocks, but I think over the years things will settle down to a new normal.”
In the immediate aftermath of the global financial crisis, a lot of additional shipping capacity was added to the market, driving up shipping rates and sparking a wave of consolidation across the industry, which is now largely dominated by three shipping alliances.
Freightos’ lead researcher Judah Levine attends the same webinar as Khachatryan and says that while additional shipping capacity is expected to be on the market in two or three years, there are signs that the shipping industry has better control over the amount of excess shipping comes online.
As evidence, Levine cites shipping rates at the start of the pandemic, which were previously predicted to decline but remained stable.
“It shows how the shipping alliances can control the availability of ship capacities much more effectively than before.”
Then there is the demand element of all of this. Dedman says that between January and May 2021, imports of goods from Asia to New Zealand rose 30 percent.
The Drewry World Container Index, which is composed of various freight rates on different routes, rose from less than $ 2,000 (NZD 2,800) per 40-foot container in 2019 to nearly $ 10,000 per container in September.
Levine also says that things will calm down at some point, but he wants people to understand that supply chains are stretched by an event of 100 years.
“It is important to adjust our expectations at some point and, no pun intended, to understand that everyone is in the same boat.”
-Zeug / Dileepa Fonseka.