No ho, ho, ho this Christmas

No ho, ho, ho this Christmas

Christmas is just around the corner (yes, really). But it will be anything but merry!

That’s the outlook for importers of consumer goods from Asia this year (and, let’s face it, every country on this planet imports heaps of stuff from Asia). The reason? A lack of freight capacity and exploding transport costs for goods from the Far East.

According to German-based software company Setlog, the situation will not change until well after Christmas. The supply chain management (SCM) experts at the company are forecasting delivery delays, capacity bottlenecks and freight rates that will remain at a very high level until at least the Chinese New Year (which takes place at the end of January). The situation is expected to ease somewhat by Easter 2022 at the earliest, the experts say.

Before making these predictions, Setlog evaluated data from about 100 brands – using its Online Supply Chain Accelerator (OSCA) SCM software – covering the period July 2019 to July 2021.

Covid plays a role

A mix of causes has kept global freight traffic working at a breaking point for months. On the one hand, the Corona pandemic has shaken up global supply chains and caused warehouses to overflow because of closed stores. On the other hand, there has been increased demand from some industries and importers. Shipowners, meanwhile, have ramped down capacity to keep prices high.

“Although new ships and containers have been ordered, it takes months to put them into circulation,” says Ralf Duester, board member of Setlog. Exacerbating the situation is the fact that there has been an export boom in Asia, which is additionally driving demand for spare transport capacity. “Unpredictable events – such as the Ever Given accident in the Suez Canal, the closure of the port of Yantian and, more recently, the partial closure of the port in Ningbo – made the situation even worse,” Duester tells FOCUS.

Explosion in sea freight costs

So far, the peak of the price explosion in sea freight from China to Europe was the transport of a 40-foot high cube container, for which US$20 000 was paid. To put this into perspective, in July, prices for containers from China to Western Europe hovered between US$14 000 and US$16 000. This is six to eight times pre-pandemic prices – and Setlog forecasts Christmas shipping rates of six to eight times that of 2019 levels, depending on the country of production.

However, high sea freight rates do not guarantee on-time deliveries. On average, goods from Asia were in transit eight days longer than before the pandemic. Setlog calculated that sea container transport takes up to 42 days to reach Europe. Reasons include cancelled voyages (blank sailings), slow ships and delayed unloading at the ports of destination. The data also shows that importers from the apparel industry reduced volumes by between 25% and 35% versus 2019, depending on the item.

Volume decreases also occurred in air freight. For example, this transport segment accounted for only 7% of the companies analysed – versus 23% in 2019. The pandemic was also the main reason for this: textiles and light consumer goods that are flown were stocked in overflowing warehouses – and volumes reduced slowly.

Rail transport under pressure too

As rail transport reached its capacity, bottlenecks also occurred in this mode of transport. Goods are currently being cleared in China and at the various customs crossings – and, in some cases, there are massive delays. In fact, delays of up to two weeks are currently envisaged. Setlog observes that bookings are currently being made four to six weeks before the train’s departure date.

In order to manage their supply chain digitally, more and more customers are showing interest in Setlog’s OSCA SCM software. Dr Christian Freckem, deputy CEO of Katag (Europe’s largest fashion service provider), confirms: “Global supply chains can be disrupted at any time. Those who can communicate with all supply chain partners via central SCM software in the event of incidents have a major advantage over those who resolve all changes by email or telephone.”

Inflation rising

Some companies have already reacted to the tense situation in global freight traffic. The heads of KiK and Rossmann – two massive European retailers –predicted at the beginning of July that price increases would be coming in the retail sector. And economic experts are currently no longer ruling out the possibility that the inflation rate in Germany could temporarily rise to 4% (it’s already standing at 3,8%). Consider that the inflation rate in that country was 1,94% in 2018, 1,35% in 2019 and 0,37% last year … and 4% is somewhat massive.

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Focus on Transport

FOCUS on Transport and Logistics is one of the oldest and most respected transport and logistics publications in southern Africa.
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