- Prices for global shipping have skyrocketed with follow-through consequences for economies in general
- An estimated 80% of the world’s goods are transported by sea
- Oligopolistic and ancient industry structure looks ripe for disruption, but easier said than done
As 2021 is exposing many of the flaws and fragilities of the global shipping industry, disruption seems but the logical response. However, reforming the industry is far easier said than done, writes Ed Kennedy for FN Arena.
Suez canal crisis
On 23 March the Ever Given – one of the largest shipping containers in the world spanning around 400 metres in length – was on a journey from Malaysia to the Netherlands when it got stuck in the Suez Canal, near the tiny Egyptian village of Manshiyet Rugola. In doing so it brought all traffic in the Canal to a standstill.
Often when there’s a crisis with a ship the difficulty in resolving it is due to the complexity of a ship’s legal structure. As the Ever Given is a Panamanian-registered and Japanese-owned vessel that was stuck in Egyptian-controlled waters, such a situation would’ve been par for the course. But this time it was simply a physical matter.
The ship ended up ‘wedged’ horizontally on the banks of a canal that at its narrowest point is held to be just 300 metres wide.
There remains ongoing debate surrounding the exact cause of the ship running aground – reportedly it was traveling in excess of the Canal speed limit before getting stuck – but whatever the cause, the consequences of the incident have been colossal.
Though the ship was eventually refloated, the Suez Canal Authority holds the cost of losses and damages from the blockage will be north of US$1bn.
For context, an estimate from early 2020 held entire cost of loss from the coronavirus pandemic would be US$1.7bn.
Containing the Issue
While the Suez incident was an exceptional event, it represents a vivid example of how quickly a crisis can arise in the industry, and send regular operations far off course, exposing the fragility of a business model that countless ships operate with daily.
The pandemic has created a complex problem for the sector. Although demand for shipping goods has soared since the worldwide outbreak of covid-19, the shortage of shipping containers has resulted in substantial delays in shipping goods, and the drastic inflation of shipping and container prices.
According to the Freightos Baltic Index – which measures price movements of 40-foot containers in 12 major maritime lanes – the average weekly price in July 2019 was around US$1340, in July 2020 around US$1800, and now over US$5000 in early June 2021.
Given when measured by volume it’s estimated around 80% of the world’s goods are transported by sea, it’s easy to see why such a sudden spike in delays and costs represents a diabolical cocktail.
Global transport crisis
The knock-on effect for retail has been immense, with IKEA’s Singapore division notably labelling it a “global transport crisis.”
For businesses relying on the transport of goods via sea, the ongoing threat of snap lockdowns which can restrict operations locally, compounded by the upheaval in the shipping sector, represents a double whammy of danger to their bottom line.
Part of the challenge with the container shortage owes to the inability of the sector to know precisely just how many containers are out there.
Spike in demand
Although there are lots of containers right now sailing along on a vessel somewhere, many others are sitting idle in ports. Others still are understood to be sitting unused in warehouses beyond the port.
Then there’s been the problem of some private firms – sensing a spike in demand on the way – stockpiling containers, and selling them off to the highest bidder.
Because of the international nature of the industry, an issue like container shortages indeed has no easy fix.
But just as an issue in the industry can span the globe, the advantage of an era where economic digitisation and globalisation are rapidly progressing is the potential for a solid solution that has a great roll out with one business or port, to then be easily replicated elsewhere.
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Source: FN Arena