The Loadstar reports on an unforeseen side effect of the current supply chain crunch.
The combination of congestion at US west coast ports and low interest rates is allowing US importers to use containerships as ‘offshore warehouses’, mitigating logistics costs.
According to freight visibility company project44, transit times from China to Los Angeles have nearly tripled, with freight taking up to 60 days to be cleared through LA and Long Beach ports – its data suggests an average of 540,255 teu per month was waiting to berth at LA.
Figures from p44 and HSBC estimate the average value of a container load at $40,000, with an average cost of financing of 3.2%, generating an extra $321m in interest between January and November 2021, says p44, adding this is “a small fraction of the total cost of goods”.
It said: “With interest rates at historic lows, companies could finance a surplus amount of inventory and essentially store it at sea for two months. While this might not be entirely deliberate, the congestion helped companies circumvent storage costs on the excess inventories.
“Though shippers paid interest-related penalties on freight stranded at sea, the costs were diminutive compared with storing that inventory on land (warehousing prices are high, while availability is scarce).”
There’s more at the link.
That’s a side effect I hadn’t considered, but it makes sense. The purchasing company saves money, because it doesn’t have to pay high charges for medium- to long-term warehouse storage of its goods. The shipping company doesn’t care – it’s charging record rates anyway, so it’s raking in the cash for its vessels every single day (including port delay surcharges), making huge profits at essentially minimal additional expense. The only people who suffer are the retailers waiting for their goods, and the consumers – you and I – waiting to buy them. We’re all sitting with the same empty shelves, in stores and in pantries. (Other importers and exporters are also hit in the longer term, as the ships they need to transport goods from factories to consumers sit with their full loads, waiting to discharge them before they can go back for another cargo; but again, that cost is charged to the account of buyers, both corporate and private, so we end up paying for it one way or another.)
The challenge of shipping goods across oceans will continue for years to come as markets continue to be disrupted by the effects of the supply chain crunch. One expert sees no relief during the next decade.
We’re in the midst of the perfect storm, created by a combination of a worldwide driver shortage, equipment shortage, pandemic-related port congestion issues, container carriers’ disregard for signed contracts and an influx of exports from Asia into the US. And another storm cloud is that big carriers are buying up port facilities and freight forwarders, enabling them to have a firmer grip on rates and services.
. . .
Massive new build programs might launch in time, but the supply chain problems will remain. If anything, additional cargo sitting outside the US, Northern European, or main Chinese ports will only add to the paralysis, as budget and approval for port expansions get backlogged in government red tape. Driver and port worker shortages will only worsen as the populations in North America, the UK, and the EU continues to age out.
Again, more at the link.
Electing a new government in 2022, and/or a new President in 2024, won’t solve those problems (although a more competent Administration will undoubtedly do more to remedy their effects). We’re in this for the long haul, whether we like it or not.