Why Long-term Shipping Contract Costs More Than 400%?


  • Shipping industry officials told a committee on Wednesday that the global supply chain crunch has pushed long-term shipping contract costs up more than 400%.
  • Alongside this, with costs and demand rising, and supply of ships at crunch point, some vessels are now selling for 15 times what they were before the pandemic.

Yaboo news source by Lucy Harley-Mckeown states that global supply crunch pushes long-term shipping contract costs up 400%.

Just in time model

Costs are “much, much higher,” she said.

The shipping industry runs on a “just in time model,” where goods are ordered to arrive when companies need them and not before. The pandemic knocked this off-kilter.

Shipping officials told the committee that the problem had come to a head in September, when ships were arriving at port both with late deliveries of garden furniture and early orders of plastic Christmas trees.

Dipping back to orange zone

The problem has eased somewhat since then, said Tim Morris, CEO of the UK Major Ports Group, but it is still very busy. He also noted that things could change “very quickly”.

“You don’t need too much to change for it to dip back into the orange zone,” he said.

Gavin Simmonds, policy director commercial at the UK Chamber of Shipping said the “supply and demand is [still] seriously out of balance.” 

Burgeoning cost of living crisis in the UK

The committee’s comments come amid a burgeoning cost of living crisis in the UK, as inflation threatens consumers wallets with the impact on supply chain costs filtering through to retail prices.

Alongside shipping delays there is also a shortage of HGV lorry driver to transport goods around the UK. The shift to ordering products online during the pandemic has exacerbated this issue.

The committee said that a long-term consequence of the supply issues could result in retailers shortening their supply chains and sourcing more products locally.

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Source: UK Finance


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