Understanding the Global Shipping Crisis

The COVID-19 pandemic has affected all aspects of our lives, both personally and commercially. This is particularly the case in the timber industry. I’m certain all members are aware and have been impacted by the worldwide timber shortage that has affected all corners of the globe. Whilst local supply has been impacted by the bushfires of 2019 and 2020 and the increase in demand for housing due to the HomeBuilder program, overseas supply too has been severely disrupted. The enormous demand for timber due to the building boom in the USA has meant that importers in Australia are having to compete with USA companies willing to pay exorbitant prices for timber. If you are sourcing timber offshore, the global shipping crisis presents an additional set of challenges for importers.

There are many factors contributing to the shipping crisis, the surge in demand for consumer products during and post COVID has brought pressure on the global supply chain. This has resulted in the cost of seafreight to skyrocket around the world (refer container price index below). This consumer boom has triggered traffic jams in ports around the world. Add to this the shortage of qualified labour due to coronavirus quarantine rules, a physical shortage of shipping containers and also the fact that shipping lines can’t get containers back to origin to get reloaded; we have the perfect storm. Given we are all part of a complex global supply chain, container movements to Australia are heavily influenced by events that occur outside our region. Following are numerous recent examples of incidents outside our region that have had an enormous impact and flow–on effect into the Australian and New Zealand trade lanes; the Suez Canal incident, excessive delays at Long beach terminal and the shutting down of ports in Southern China and Malaysia due to COVID has restricted and delayed the movement of hundreds of thousands of containers worldwide.

If the above facts were not enough cause for concern, there is one more factor that is very specific to your industry and that is the weight of your cargo. Vessels obviously have maximum weights and containers they can transport. Assume for a moment you own a shipping line; you are presented with a booking for 1 x 40’ container of timber weighing 30 tonne at the rate of USD7000.00 per container. Shortly after, you receive another booking for 3 x 40’ containers of stuffed toys at 10 tonne per container at USD7000 per container (same tonnage but total revenue USD21000 as opposed to USD7000 for the timber container). Which booking would you give priority to? The shipping line is committed to the same weight being loaded on the vessel, however, it now has three times the revenue for the shipment of soft toys. Unfortunately, this scenario is all too common, the shipping lines have the upper hand at the moment, they are greatly benefitting from the global shipping crisis. There are experiencing record profits without having to introduce new vessels, services and routings. The shipping lines are consistently not honouring contract rates, forcing importers to pay “spot” rates that are considerably higher than contract rates without any guarantee or recourse with respect to uplift, service and transit times

This shipping crisis is unprecedented and unlikely to improve in the short-term, analysts are predicting the current situation will continue until mid to late 2022 dependant on possible future COVID outbreaks, vaccination levels and consumer demand, amongst other factors. Moving forward, what can importers do the alleviate the current circumstances? It is important to understand the supply chain issues and the impact on your industry and your business. Forecasting and subsequent order management are a priority more than ever before, securing supply well in advance, reviewing lead times and incorporating shipping times and delays into your forward planning is essential. Therefore, those organisations that can implement a robust forecasting and forward planning system, whereby stock levels are maintained at a consistent level, will mitigate the risk of future supply chain issues.