Pandemic problems overwhelm global supply lines
Costs increase,prices climb, delays disrupt distribution of goods
Washington — One year after the coronavirus pandemic first disrupted global supply chains by closing Chinese factories, fresh shipping headaches are delaying U.S. farm exports, crimping domestic manufacturing and threatening higher prices for American consumers.
The cost of shipping a container of goods has risen by 80% since early November and has nearly tripled over the past year, according to the Freightos Baltic Index. The increase reflects shifts in consumption during the pandemic when consumers have redirected money they once spent at restaurants or movie theaters to the purchase of record amounts of imported clothing, computers, furniture and other goods.
That abrupt and unprecedented spending shift has upended long-standing trade patterns, causing bottlenecks from the gates of Chinese factories to the doorsteps of U.S. homes.
The commercial disorder is the latest blow to globalization’s finely tuned engine, capping more than a decade of financial crisis, trade wars, contagion and recession. Each shock has triggered swings in the flow of cash and goods through the $91 trillion global economy. But reverberations from the pandemic are exposing vulnerabilities in the physical plumbing of cross-border commerce that may linger, according to exporters, port officials and trade specialists.
“It’s crazy. Prices are at record highs. Multiple things are happening all at once,” said Phil Levy, an economist with Flexport, a San Francisco-based
freight forwarder. “People work off of expectations. But now there’s just so much uncertainty.”
At the Port of Los Angeles one day last week, 42 ships were anchored offshore, waiting to unload their cargoes, even as every warehouse within 60 miles was already full. A shortage of dock workers amid California’s worsening coronavirus outbreak is complicating operations; inbound cargo volumes in December were more than 23% higher than one year earlier.
“Some areas of the supply chain need to be sharpened,” Gene Seroka, the port’s executive director, said. “People are a little bit on edge.”
It’s a global problem, and it may get worse before it gets better. More than one-third of the containers transiting the world’s 20 largest ports last month did not ship as scheduled, according to Ocean Insights, a data provider.
The cost of imported industrial supplies jumped 4.2% in December and is up 27% since April’s pandemic low, with manufacturers citing shortages of materials such as steel.
Shipping issues are affecting brand names such as Gap, where an executive recently told investors that “port issues” were impeding operations. At WD-40, higher freight and warehousing costs lowered profit margins last quarter, Jay Rembolt, the company’s chief financial officer, told investors. Bang & Olufsen, a maker of music systems and televisions, said it had resorted to more expensive airfreight to compensate for a lack of seaborne options.
“These challenges have put inflationary cost pressures on our and many businesses and, as the market is anticipating, will put further inflationary pressure on transportation rates in 2021,” Shelley Simpson, chief commercial officer for J.B. Hunt Transport Services, said on a recent earnings call.