Tenfold increase in global shipping costs is causing disruption to Supply chains

disruption to Supply chains

Tenfold increase in global shipping costs is causing disruption to Supply chains

The UK’s post-Covid economic recovery has hit a stumbling block in recent weeks due to the alarming shortage of HGV drivers which is causing panic buying of fuel and empty supermarket shelves.

Commentators have highlighted the desperate situation of the global supply chain as a potential factor in the faltering recovery.

Another symptom of this is the skyrocketing cost of container-shipping. Indeed, the cost of sending a 40-foot container from China to Europe has more than quadrupled since last year and is up a staggering 50% since May.

For a container from China to the UK, pre-pandemic prices were a rosy $2,500, whereas now they can be as high as $15,000.

A large cargo ship in the water operating within the global supply chain.

What’s causing the rising fees?

An image of the Suez Canal Crisis which wreaked havoc on the global supply chain.

There are several reasons why this is occurring, and it helps to look at a timeline of events beginning at the start of the pandemic.

At the beginning, when a large portion of the world’s population were locked down, we were ordering products online like never before. E-commerce was simply just commerce. This strained global supply chains and was the first causal effect in the situation we have now.

Now as we emerge from the pandemic, there is increased consumer demand for products whilst at the same time businesses are stockpiling goods, perhaps as a hedge against further lockdowns.

The main issue is that there is a huge backlog that looks set to endure for a few years yet. When disruptions to key ports in China, and the Suez Canal Crisis are factored in, it only exacerbates the backlog.

All these events contribute to rising fees as those involved in container-shipping are being stretched to their very limits.

How will high prices affect consumers and businesses?

Unfortunately, skyrocketing container-shipping prices will have a knock-on effect throughout the global supply chain.

Firstly, businesses will need to absorb some of the costs if they are to remain competitive. Peloton, the indoor exercise bike company, announced earlier this year that they will pump $100m into delivery logistics to help ease their growing backlog.

Logistics companies may have to start looking at alternative options for making deliveries. For example, to fill supply gaps, truck convoys have been travelling the 6000-mile route from Beijing to Berlin.

It is unclear when the consumer will also be hit with the bill, but is inevitable and many consumers have already noticed the rising costs of food. The rising costs of container-shipping will probably pile more fuel into the inflationary fire that appears to be brewing.

A picture containing an indoor exercise bike used to illustrate the investments made by companies like Peloton who are suffering from supply chain backlogs.

What should businesses do?

 

There are a few things businesses can do to mitigate against rising fees. Firstly, some of the more extravagant prices that have been quoted for 40-foot containers, such as $24,000, are based on last-minute, unplanned orders.

Most businesses have yearly contracts with delivery logistics companies which should keep prices down to a reasonable level. Businesses need to stay organised when it comes to delivery logistics, something that the pandemic has highlighted anyway.

However, businesses can also look into reshoring and nearshoring. By shortening supply chains and becoming less reliant on only one country for supplies, businesses can lower costs and make their supply chains more robust in the case of an emergency.

How can InspireXT help?

 

At InspireXT, we are the proponents of a technology-backed supply chain solution which simultaneously builds off your existing architecture through modular upgrades, whilst also reducing data silos so that product-centric data flows freely throughout the organisation.

This helps businesses in several dramatic ways including reducing capital expenditure due to better inventory management, improved sales and operations planning, as well as providing an overall improved customer experience.

Through our primary offering, Connected Supply Chain, we are helping businesses mitigate against the rising costs of container-shipping by helping them become more accurate when it comes to demand forecasting and channel management.

If you want to find out more about Connected Supply Chain, you can download our e-book here.

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