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Impact of Container Shortage on Global Merchants, Potential Workarounds, and What The Future Holds

Impact of Container Shortage on Global Merchants, Potential Workarounds, and What The Future Holds

If you have noticed the recent inflation in shipping prices and increased delay in shipping times, you’re not alone. There has been a shipping container shortage in all parts of the world — causing many international companies to tweak their shipping methods in order to maximise the space in the available shipping containers left.

In today’s article, we explore the reason behind this shortage of shipping containers globally and how some workarounds you can consider in order to keep running your business smoothly.

This Article at a Glance:

1. How important are shipping containers in your supply chain?

The availability of shipping containers can make or break your business, more so if you are trading globally and require huge shipments of your products to be shipped at one go.

2. How will the shortage of containers affect you as an international merchant?

You could face slower shipping times, delays in your global supply chain, increased shipping costs, and higher tariffs on freight shipping.

3. How can I combat this issue?

Well, there are possible workarounds. In this article, we give you a few possible options — read on to find out more.

The role of shipping containers in the supply chain

But first, if you are just starting out to your business journey, here’s an introduction on the role of shipping containers in your global supply chain. Apart from using shipping containers as an alternative to traditional office spaces due to their durability and low cost, they play an important role in your supply chain. Simply put, if you are shipping goods from an overseas port, you need shipping containers—you can’t be shipping heaps of products through small packing boxes anyway.

Shipping containers were abundant in the past, therefore merchants placed their focus more towards the actual supply chain—original shipper, third-country agents, and releasing agents. Due to the unforeseen events driven by the pandemic, there has been a crisis with the lack of shipping containers, causing a cavity in the supply chain.

How will this shortage affect you as an exporter and international merchant?

At face value, many global merchants have reported slower shipping times and delays in the freight process. As we dive deeper, we realise that the lack of containers has a ripple effect on the entire supply chain, effectively disrupting global and international trade. Increasing costs to get a container, difficulty in meeting consumer demands and higher tariffs on containers and shipping rates are just the tip of the iceberg.

If your business is trading internationally, you unquestionably require shipping containers to handle large volumes of consumer goods. You could say — I could just pay extra for a container then, since I could increase the price of my goods and still earn profit. However, is it that simple to get a container even though you’re willing to pay an exorbitant price for it?

Cost of getting new shipping containers

According to an article by Forbes, prices for shipping containers skyrocketed more than 500% in July, when toy companies started shipping their holiday products to retailers. Buying a container sounds like the easy thing to do if you want to get your goods across seas, although Freightos Baltic Index (FBX), a provider of market rates for shipping containers, reported that the cost of a container in September 2021 was $ 11,104, compared to the price of $ 3,452 in January that same year.

If you thought it was relatively cheaper to ship goods via freight consignments, you might want to think again. According to data analytics from Xeneta, the cost of transporting goods after the spike via sea shipping ranged from $ 5,500 to $ 20,000. The bigger issue here is: even if you had the cash to spend on inflated container costs, it still does not guarantee that your shipment will be punctual and delivered on time. This can be due to certain reasons including backlogs at the destination port, railyards, and delivery companies.

Case study: Ikea

So, what are some companies doing to combat the shortage of shipping containers? Take Ikea, the biggest furniture company in the world.

By squeezing as many seasonal products as they can into massive shipping containers that are available for use and prioritising lightweight, pliable items such as pillows, plates, and small kitchen items, they maximised the space inside these containers. The best sellers — desks, chairs, and storage boxes, were delayed due to its large size. This meant that the company could fit more of the smaller and compact items, which in turn calculates into more profit.

Why is there a shortage of shipping containers?

This brings us back to our initial question: what happened to all the existing shipping containers? One might put the blame directly on COVID-19 and national lockdowns, although this is undeniably the main problem. Another point is that merchants were unprepared for a situation like this. Before, shipping containers were seen as ‘not-so-important'. Now, the supply chain depends on it.

When COVID-19 began to spread around the globe around early 2020, many countries started implementing nationwide lockdowns, putting a halt to the production of goods and the import/export businesses. As a result, most companies began reducing the number of cargo ships being sent out. Not only does this affect international trade, but empty shipping containers were also unable to return to their original port due to COVID-19 restrictions.

However, there must be a place where these containers are parked. Many of them are, in fact, in inland deports, cargo ports, and onboard vessels. When the Asia region started to recover from the pandemic and consumer demand began to rise, other countries that were hit later such as Europe and the US, were still faced with lockdown restrictions. This meant that containers could not be sent back to Asia where there was demand. Industry experts described this situation as the effect of the pandemic and uneven global economic recovery.

Some reasons for shipping container shortages worldwide

There are a few reasons for the worldwide shortage of containers. In the following sections, we explore four reasons why.

1. Shipping ports around the world were working with a reduced workforce

A reduced workforce meant one thing — fewer hands on deck. Vessel delays, destination ports taking a longer time to unload the containers, and missed sailings are a common issue faced by shipping ports globally, although demand for consumer goods continues to skyrocket. According to the National Retail Federation’s Global Port Tracker, an estimated 26 million 20-foot containers' worth of products are expected to arrive in the US in 2021, an 18% increase from 2020.

However, the lack of workers to load and unload these products and the undersupply of delivery drivers to transport these goods to their final destination has stranded approximately 3 million containers around the world — Niels Larsen, president of Air & Sea North America at DSV (an international transport and logistics firm).

2. Less operational shipping vessels

As countries worldwide faced lockdowns, world trade also slowed down. Because of the lower demand, many industry giants chose this downtime to send their vessels for refurbishments or dispose of older, problematic vessels. On top of that, ships would be stranded at sea if there was ever a COVID-19 case spotted onboard a vessel en-route to the destination, in order to contain the case. As a result, there could be products waiting to be shipped, but are stuck at the shipping ports with their shipping containers.

3. Shipping containers were not in the right locations when they needed to be

Because of the abnormal supply chain crisis, most containers are stuck on vessels that are waiting outside ports. One issue, as we mentioned before, was that businesses could not get to their goods. Another issue is that those containers that are stuck cannot be moved back to where they’re most needed. Even if the containers successfully clear the port and can be unloaded, the lack of human workforce cannot be unloaded fast enough for them to be sent back to Asia — where the largest demand was.

One highlight was the closure of a major port in southern China in May and June. The shutdown of the port left 350,000 loaded containers and around 50 container ships inactive and stacked up on docks because of a COVID-19 outbreak that interrupted normal operations.

4. Huge consumer demands and expectations for faster deliveries

Especially for e-commerce importers and exporters, the strain to expedite shipments and bring in the huge bulk of products at one go is huge. As the prices for each container increase, stores have to choose between shipping smaller items versus shipping more profitable items. For instance, you could choose to pack a lot less bulky items to fill up your container, but those items may not be that profitable. On the other hand, the profitable items may be too bulky to fit many of them in your container — which could lead to your business failing to meet customer demands.

Consumers are turning to online stores such as Amazon, Target, Taobao, and other e-commerce shops that rely very heavily on imports. With the pandemic, customers are picking items off e-commerce shelves causing a surge in demand but goods are not getting shipped out because of the lack of containers. As these companies do all they can to seize hold of available shipping containers, smaller companies could only wait for containers to free up.

Why can’t we just manufacture more containers to combat the shortage?

Well, it may not be as easy as you would think. Shipping manufacturers are mostly based in China, and the country builds around 97% of all the shipping containers in the world. Imagine the raw materials and workers needed to build these massive steel boxes from scratch. Even if you are willing to pay double the price for a container (manufacturers are reportedly charging $ 2,500 for a new container), you will still need to wait for your turn. As an estimate, the time taken to get a container from Beijing to Chicago is no longer 30 days; the time taken has increased to 70 days.

What can you do as a potential workaround?

1. Avoid shipping products with expiry dates

If your product has an expiry date, it could be risky to ship them now — you would not be able to know the shipping time. What if your products expire before they reach their destination? It would be both a waste of time and a shipping container. To combat this, review your products and see if you can plan your way around it. You could also try pushing sales and promotions to boost sales for products that do not expire.

2. Cut down on unnecessary shipping booking processes

Your supply chain plays a crucial part in your international business. Always look ahead and book your shipments and freight consignments with maximum buffer time, just in case something goes wrong in the process.

3. Anticipate periods of high demand

Periods of high consumer demand can be calculated. For instance, Christmas, Halloween, and the New Year are popular times when people shop for gifts. In view of this, start your shipping process much earlier (for example, in August for Christmas in December).

4. For traditional businesses, stack your shelves the right way

It could be tricky for traditional retail businesses, where you require warehouses and storage places for your products. Bringing in too much product could increase your costs for storage and may not be cost-effective. Therefore, think ahead of where you can store your items for a longer period at a lower cost. Alternatively, try to sell off existing stock at promotional prices before bringing in a new batch of goods, stock your shelves in the most effective way, ship more goods that take up less space, or reduce incoming stock for bulkier items.

5. Rethink and reduce seasonal products

As a business that still needs to operate amidst the pandemic, importers should reevaluate what products they are certain will sell in order to maximise profit margin and possibly cover the loss of cash because of increased shipping rates. Furthermore, you could also reduce new or festive seasonal designs and stick to your best-selling designs.

The logistics world is always moving forward and improving the way it runs — so should your payment methods, especially for cross-border payments as an international merchant.

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