2021 Supply Chain Chaos – Pulp, Packaging, and Freight…Oh My!

2021-05-12 18:06:49 admin

021 Supply Chain Chaos – Pulp, Packaging, and Freight…Oh My!

2021 has left the pressure sensitive label industry in complete and utter chaos.

Shipping costs and freight rates are soaring. Soaring freight rates, cargo container shortages, and port congestion have driven up shipping costs. Lead times have extended so far out, they are unknown.

A rising need for pulp and paper has far exceeded supply and demand, escalating raw material costs. Packaging supplies like sealing tape, stretch film, and ribbon are seeing price hikes to the moon.

We know these disruptions mean big problems for the label industry, but what do they really mean for everyday people?

Well, someone has to pay when the cost of goods increases. Up until now, manufacturers and suppliers have been absorbing these additional prices. But they can’t anymore. Now those rising prices are making their way to you and your wallet.

Drawbacks with freight means that need-to-buy items you’re looking for will either be low in stock or completely unavailable. The wait time for shipping for items you want will range anywhere from weeks to months. And there’s no end in sight.

Each leg of the supply chain has taken a massive blow, and the hits just keep coming.

Freight Rate Increases

Over the past year, ocean cargo prices have skyrocketed up to 4 times the amount they previously were. These prices have affected 40-foot containers, a common size used for shipping products. Costs to ship to and from China have exploded within only a year’s time.

For example, the median cost of shipping a 40-foot container from China to the Eastern US coast more than doubled from $2,559 in February 2020 to $5,822 in February 2021.

In another example, the median cost of shipping a 40-foot container from China to the Western US coast increased exponentially from $1,300 in February 2020 to $4,992 in February 2021.

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According to Freightos Baltic Index (FBX), spot rates for 40-foot containers from China to the Eastern US coast peaked in mid-January 2021 at $7,776

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According to Freightos Baltic Index (FBX), spot rates for 40-foot containers from China to the Western US coast peaked in mid-January 2021 at $6,163

Across the globe, millions of goods are constantly being imported and exported via ocean cargo. With freight rates climbing to such extremes, prices on imports and exports will inevitably be affected, putting a further strain on the economy as inflation surges higher for everyday consumer goods and supplies.    

Unfortunately, these median cost increases aren’t the only problem plaguing the transportation of ocean cargo. The amount of bad luck the shipping industry has accrued is spreading, from shortages of shipping containers all the way to complications with labor.

Shipping Cost Drivers

The shipping industry thrives on periods of stability and predictable business. But nothing was more unpredictable than the 2020 pandemic and the intense turmoil it caused. From 2019 to 2020, global trade only declined around 1%. However, from April 2020 to May 2020 it fell 15% before quickly rebounding.

The ocean cargo business is already very volatile, with maritime operators usually seeking long term, stable contracts over spot business. This usually helps to manage volatility, but 2020 caused a mix of new customer demands.

Customers with large, new demands for freight tend to fill it using spot business over long term contracts. Spot business flourished with the rise of supply and demand caused by the pandemic. For example, demand for disinfectants has increased 6,800% and demand for items like exercise equipment has doubled over the past year.

The main sources for shipping cost increases stem from complications with container shortages and labor constraints.

Container Shortages

Currently, there is a global shortage of shipping containers available.

Due to labor shortages caused by COVID-19, containers have been stranded in ports and rail yards. The stranded containers have caused a shortage and new customers are unable to receive containers to fill with their products.

Containers delivered to ports in South America and Africa are not being picked up, because these are considered to be less profitable routes. It is more profitable for vessels to work China-USA routes and China-Europe routes.

A container ship along a port transports supplies and goods.

COVID Cases Reducing Workers

COVID-19 has reduced the number of dockworkers and truckers working due to many of them testing positive.

At the start of February 2021, over 1,000 dockworkers in California tested positive for COVID-19, up from 694 workers in January 2021. These shortages in workers are further exacerbated by an unprecedented volume of imports in western US ports like Los Angeles and Long Beach.

Wait times for anchorage at these ports often exceed a week, which only continues to increase costs.

Labor Constraints

Shortages of truck drivers, rail workers, and longshoremen are further driving up freight rates. Because of these labor shortages, vessels are unable to be unloaded within a timely manner. A lack of longshoremen has even caused many ocean carrier operators to cancel voyages. This snowball effect further slows the rate at which shipping containers are recycled back into service, making the already deep shortage of empty containers that much worse.

Another danger to increasing costs is port closures. The Port of Montreal’s longshoremen union is currently in a continuous labor negotiation. On March 21, 2021 they voted against new offered terms, leaving the potential for a strike over the dispute. This uncertainty is driving deliveries elsewhere. A closure of this port will drive ocean cargo to other ports that are already overwhelmed, adding to more ocean transit delays.

So what can we expect moving forward with ocean cargo?

Forward Progress Grinds to a Halt

Currently, transit costs are only slightly lower from their peak rates in February. With the world’s economy beginning to see signs of reopening for the summer of 2021, many are hopeful that COVID-19 cases will be in remission. If this happens, there will be a corresponding increase in economic activity.

The demand for ocean cargo will support elevated transit costs and opening economies will again lead to changes in consumer preferences, adding to volatility through additional spot business.

However, all of this positive future outlook came to a screeching halt with one, woeful mishap: a complete blockage in one of the world’s most popular shipping routes.

Blockage in the Suez Canal

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On March 25, 2021, a 1,300 foot container ship called the Ever Given became stuck in the Suez Canal in Egypt, completely blocking transit and further halting shipping. Around 12% of all global trade travels through this canal, which provides a route connecting Europe to Asia. Hundreds of cargo ships and tankers were stuck waiting in the Red Sea near the opening of the Suez Canal for 5 days until the ship became unstuck on March 29, costing hundreds of millions of dollars.

Even with the ship moved and the flow of traffic resuming, the ramifications of this event left many deadlines missed as some ships rerouted, taking longer voyages and adding weeks to their scheduled journeys, along with added fuel and operating costs.

But it’s not just the shipping industry experiencing turmoil. Carriers across the US have also seen massive delays and disruptions, some even due to events beyond human control.

It is estimated that the blockage ended up costing $400 million per hour.