[Reading level: C1 – Advanced]
One of the world’s most vital trade arteries has been blocked by a quarter-mile-long container ship, creating a traffic jam that has ensnared over 200 vessels and could take weeks to clear.
But even before the Ever Given ran aground in the Suez Canal earlier this week, global supply chains were being stretched to the limits, making it much more expensive to move goods around the world and causing shortages of everything from exercise bikes to cheese at a time of unprecedented demand.
A prolonged closure of the key route between West and East could make matters much worse. Costly delays or diversions to longer routes will heap pressure on businesses that are already facing container shortages, port congestion and capacity constraints.
The grounding of the Ever Given is delaying shipments of consumer goods from Asia to Europe and North America, and agricultural products moving in the opposite direction. As of Friday, some 237 vessels, including oil tankers and dozens of container ships, were waiting to transit the canal, which handles about 12% of global trade.
“There’s been a great convergence of constraints in supply chains like I’ve never seen before,” said Bob Biesterfeld, the CEO of C.H. Robinson, one of the world’s largest logistics firms. The bottlenecks are widespread, affecting transport by air, ocean and road, Biesterfeld told CNN Business in an interview. “It really has been unprecedented.”
Freight costs soaring
More than 80% of global trade by volume is moved by sea, and the disruptions are adding billions of dollars to supply chain costs. Globally, the average cost to ship a 40-foot container shot up from $1,040 last June to $4,570 on March 1, according to S&P Global Platts.
Those costs add up. In February, container shipping costs for seaborne US goods imports totaled $5.2 billion, compared to $2 billion during the same month in 2020, according to S&P Global Panjiva.
These expenses could soon mean higher prices for consumers, adding upward pressure to rising inflation — a nightmare scenario for Wall Street, which is already fearful that a spike in prices could force the Federal Reserve to hike interest rates sooner than expected.
“At the moment a lot of these costs are within the supply chains,” said Chris Rogers, a research analyst at S&P Global Panjiva. “I think it’s inevitable that it will be passed on to consumers — it’s just going to take time,” he added.
The coronavirus wreaked havoc on global supply chains last year, as lockdowns temporarily closed factories and disrupted the normal flow of trade. Economic activity slowed dramatically at the start of the pandemic, and the rapid rebound in trade volumes that followed caught companies off guard.
A pickup in manufacturing and seemingly insatiable demand from housebound consumers for goods such as televisions, furniture and exercise bikes has stretched suppliers and made it difficult for consumers to find the products they’d like to buy.
Manufacturers have also struggled to secure crucial components. Major carmakers, including Ford and Volkswagen, have been forced to idle factories because of a shortage of computer chips caused by high demand for smartphones, gaming systems and other tech gadgets.
“One year ago, global trade slowed to a crawl as the Covid-19 pandemic first hit China and then spread worldwide,” Gene Seroka, executive director at the Port of Los Angeles, said in a presentation this month. “Today, we are in the seventh month of a historic import surge, driven by unprecedented demand by American consumers,” he added.
US seaborne imports were nearly 30% higher in February than the same month last year and 20% up on February 2019, according to S&P Global Panjiva.
The import surge in the United States and elsewhere has led to a worldwide container shortage. Everything from cars and machinery to apparel and other consumer staples are shipped in these metal boxes. The factories that make them are mostly in China and many of them closed early in the pandemic, slowing down the rate at which new capacity was coming on stream, according to Rogers.
Containers are in all the wrong places
China’s exports recovered fairly quickly compared to the rest of the world. At the same time, major shipping lines had canceled dozens of sailings to respond to the earlier lull in trade. The result was that empty containers piled up in all the wrong places and couldn’t meet the sudden demand in Europe and North America for Asia-made goods.
Hapag-Lloyd, one of the world’s largest container shipping lines, has deployed about 52 additional vessels just to move hundreds of thousands of empty containers to where they’re needed most. In more normal times, there would be fewer than 10.
“That’s in reality about a ship a week that’s doing nothing more than moving empty containers,” CEO Rolf Habben Jansen told investors on a call last week.
The influx of imports has compounded problems at choked up ports, which are contending with labor shortages due to Covid-19 and a slowdown in operations caused by social distancing measures and quarantines.
On Wednesday, there were two dozen vessels at anchor awaiting entry into either the Port of Los Angeles or the neighboring Port of Long Beach, according to Port of Los Angeles spokesperson, Phillip Sanfield.
“At the Port of Los Angeles, we are actively working on an additional 17 container ships,” Sanfield told CNN Business. “Pre-pandemic, we would be working about 10 container ships with no container ships waiting to enter.”
The port processed the equivalent of nearly 800,000 20-foot containers last month — the busiest February in its 114-year history.
Companies feel the strain
Companies from Under Armour and Hasbro to Dollar Tree, Urban Outfitters and Crocs have all warned about the supply chain crunch recently, pointing to container shortages, port congestion, rising shipping costs and logistics challenges.
Costco said earlier this month that it was having trouble stocking imported cheeses because of a shortage of shipping containers and bottlenecks.
An analysis of 7,000 company earnings calls globally in January and February by S&P Global Panjiva found that more than a quarter mentioned “freight,” 37% mentioned “logistics” and half discussed supply chains.
Aston Chemicals, a UK company that supplies European manufacturers of personal care products, said its shipping costs were 6.5 times more expensive in January compared to November.
“We paid almost $14,000 for a container in January,” said managing director Dani Loughran. That was for a shipment from Malaysia to the port of Felixstowe in England, which just two months earlier had cost $2,100.
Peloton blamed US West Coast port delays for causing “longer than acceptable wait times” for the delivery of its high-end exercise bikes. The company told shareholders in February that it’s investing over $100 million to expedite deliveries by air and sea over the next six months to improve delivery times.
It’s not the only firm resorting to airplanes to move goods that would ordinarily come by boat, as companies scramble to keep up with customer demand.
According to Biesterfeld of C.H. Robinson, a number of durable goods typically transported in shipping containers are being carried in planes, such as toys and games. Companies are “choosing air freight because inventories are so low,” he said.
Airfreight is more expensive than ocean freight even under normal circumstances and therefore reserved for high-value goods. These costs are even higher at the moment because fewer flights carrying travelers means less available capacity to transport goods, a chunk of which are typically carried in the bellies of passenger planes.
That will only add to the costs facing businesses and could trickle down to consumers before long.
For Aston Chemicals, the cost increases were so severe that the only option was to pass them on to their customers: businesses that make everyday products such as shampoos, moisturizers and cosmetics.
If those companies in turn decide to hike prices for their customers, in this case retailers, consumers could start to feel the pinch soon, said Konings.
“Most prices along the supply chain have gone in one direction, and that’s up, so it has to appear somewhere.”
Source: https://edition.cnn.com/2021/03/26/business/global-shipping-supply-chains/index.html?fbclid=IwAR2HqGKaMqrUHYhPNKqUNMJuz3wRzvifCm0OdkSBo0KSalrQGkyjdXGkG9U
WORD BANK:
artery /ˈɑː.tər.i/ (n): huyết mạch
ensnare /ɪnˈsneər/ (v): bẫy, làm mắc kẹt
stretch /stretʃ/ [B2] (v): kéo căng
shortage /ˈʃɔː.tɪdʒ/ [B2] (n): sự thiếu hụt
unprecedented /ʌnˈpres.ɪ.den.tɪd/ [C2] (adj): chưa từng có
prolonged /prəˈlɒŋd/ [C1] (adj): bị kéo dài
heap /hiːp/ [C2] (v): làm chất chồng thêm
convergence /kənˈvɜː.dʒəns/ (n): sự hội tụ
bottleneck /ˈbɒt.əl.nek/ (n): tắc nghẽn
inflation /ɪnˈfleɪ.ʃən/ [B2] (n): lạm phát
scenario /sɪˈnɑː.ri.əʊ/ [C2] (n): viễn cảnh
spike /spaɪk/ (n, v): tăng vọt
inevitable /ɪˈnev.ɪ.tə.bəl/ [C1] (adj): không thể tránh khỏi
pass on to sb (v): chuyển đến tay ai
wreak havoc /riːk ˈhæv.ək/ (v): tàn phá
rebound /ˌriːˈbaʊnd/ (v, n): sự phục hồi
catch sb off guard (idiom): khiến ai đó mất cảnh giác
pickup /ˈpɪk.ʌp/ (n): sự gia tăng, sự cải thiện
insatiable /ɪnˈseɪ.ʃə.bəl/ (adj): vô độ
idle /ˈaɪ.dəl/ (v): ngừng
crawl /krɔːl/ [C1] (n): tốc độ rất thấp
seaborne /ˈsiː.bɔːn/ (adj): đường biển, được vận chuyển bằng tàu
apparel /əˈpær.əl/ (n): quần áo, hàng may mặc
lull /lʌl/ (n): giai đoạn tạm lắng
pile up /paɪl/ (v): chất đống
shipping line (n): hãng tàu
deploy /dɪˈplɔɪ/ (v): triển khai
influx /ˈɪn.flʌks/ [C2] (n): dòng chảy
compound /ˈkɒm.paʊnd/ (v): làm vấn đề tồi tệ thêm
choke up (v): làm nghẹt thở
contend with /kənˈtend/ (v): giải quyết vấn đề, khó khăn
anchor /ˈæŋ.kər/ (n, v): neo, thả neo
crunch (n – informal): khó khăn
earnings call (n): cuộc gọi báo cáo thu nhập
expedite /ˈek.spə.daɪt/ (v – formal): xúc tiến, đẩy nhanh
resort to sth /rɪˈzɔrt/ (v): tìm đến cái gì như một giải pháp bất đắc dĩ
ordinarily /ˌɔː.dənˈer.ɪ.li/ (adv): thông thường
scramble /ˈskræm.bəl/ [C2] (v): cố gắng
inventory /ˈɪn.vən.tər.i/ (n): hàng tồn kho
chunk /tʃʌŋk/ (n – informal): phần
belly /ˈbel.i/ (n): bụng
trickle down to sb /ˈtrɪk.əl/ (v): chuyển (giá trị / chi phí) tới tay ai
before long (adv): chẳng bao lâu nữa
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