Global Container Shipping Services and Supply Chain Impact

Logistics Supply Chain Trends and Developments

The whole logistics supply chain was weakened after the COVID-19 hit the global market in the early part of 2020. During the initial lockdown, multiple ships were canceled or stopped sailing due to restrictions around the globe, manufacturing output dropped, laborers, were displaced globally due to lockdown, and other stringent measures were taken by different countries internationally.

During the summer of 2020, huge fiscal stimulus by the US government swelled the import of goods to the country, demand pattern changed and online retail demand picked up. The logistics supply chain weakened after the initial months of COVID-19 when there was a sudden spike in demand from some regions because this system requires predictability and accuracy to manage the logistics and movement of the cargo from one point to another.

Shortage of shipping containers was creating problems in the supply chain with high demand from few lanes coupled with lower container turnover, thousands of containers stuck in Latin American, Asian and African Ports dispatched early during the pandemic for shipping masks which was uncollected and carriers focus on their high demand or more profitable routes. This had a bullwhip effect in key port terminals around the world, chassis and drayage shortages started to creep up, inland railroad shipments got impacted and the chain was damaged.

Impact on Container Services Procurement

Key areas of impact include price escalation, shipment delays, low inventory for the upcoming festival season, delay in contract negotiation, and order backlogs

The surge in demand for container movement has increased the spot rates drastically, especially for trade lanes such as Asia to North America and Asia to Europe. On average, the spot rates are increasing by more than 10-15 percent from Q1 2021, so it is clearly evident that overall contract rates will be elevated in 2022.

At present, the key question is, will container shipping carriers keep spot rates elevated and make shippers engage with higher contract rates. Ocean shipping is considered to be the cheaper mode of transportation globally, but currently, the market is forcing the buyers to pay ten times the cost which they paid in Pre-COVID times. The option of switching to air freight shipment is also not an alternative due to the higher cost and low capacity available for belly cargo which was drastically dropped once international air travel got severely constrained by mid of 2020.

Categories Impacted due to Current Supply Chain Disruption

All categories that are part of the logistics supply chain such as container shipping services, drayage services, intermodal/railroad services, port terminals are all impacted. The situation is not expected to improve soon with the festive season around the corner which will push the demand further for trade lanes such as Transpacific and Asia to Europe. Another reason that can influence ocean shipping is the weather condition which can play an important role in coming weeks with more than 10-15 typhoons forecasted to form in the Northwest Pacific and the South China Sea region