The name Ever Given may sound like a global charity, but on March 23, 2021, when the nearly quarter-mile long shipping vessel capable of carrying 20,000 containers became lodged in the Suez Canal, it was anything but charitable to global trade. The New York Times estimates that the floundering vessel may have cost as much as $10 billion dollars a day in global trade during the week it was lodged in the canal.
This instance, however, was only a small but very visible example of an already strained system of shipping impacted by the Covid-19 pandemic. Long before the Ever Given became a front-page name, port closures and dock worker layoffs had placed a strain on world shipping channels and created costly bottlenecks. Though vaccines have opened up retail markets and consumers have shown an eagerness to spend, shipping delays continue to hamper supply chains and drive up costs of consumer goods from furniture to apparel.
A surprising but significant cause of delays is a reported scarcity of shipping containers. In the early days of the pandemic, global trade was nearly at a standstill, leaving ports stacked with shipping containers and very few workers to unload them because of layoffs. In addition, deficits in rail workers and truck drivers further exacerbated the slow movement of containers to and from ports.
China was one of the first countries to reopen, causing a huge trade imbalance. Rather than wait for backlogged containers to reach port in the U.S., vessels opted to make more money in the Chinese ports. The result has been, as CNBC reports, “that 3 out of 4 containers from the U.S. to Asia are ‘going back empty.’” This has left other countries scrambling to get hold of containers in which to ship their goods.
With shipping fleets reduced because of Covid and with many container vessels caught in port backlogs because of Covid closures, containers and their transport have become a valuable commodity. The system has been further stressed by a decrease in flights which has reduced the possibility of air freight. Take the example of a luggage company who depended upon 11 yearly shipments of their goods at a cost of $2,500 per container (and each container carrying about $30,000 worth of product). Post-covid, that company has only been able to schedule 3 of its original 11 shipments at a cost of $15,000 per container, and each container has to be transported by ground to Myanmar at a cost of $3,000. The $18,000 total bill then consumes 60% of the total value of the shipped product.
This leaves vendors few choices other than to halt trade, increase their prices, or try to absorb costs while waiting out the crisis, which results in either immediate or longer term price increases. Some companies with deep pockets are able to be proactive. Home Depot, for example, has secured its own container vessel. Other companies, such as the apparel vendor who owns Tommy Hilfinger and Calvin Klein, have built air freight costs into their retail prices. But small companies who can’t afford such expenditures are left caught in the void.
With the cost of transporting containers ranging from 267% to a whopping 547% higher, depending on location and route, it is likely we will see our over-the-counter prices deeply impacted. And with materials needed to build new containers in high demand and also impacted by shipping delays, it may be some time before this crisis ends and retail prices drop.
This article was written in partnership with online faxing service, Faxage.