In the last few months, the cost of shipping has skyrocketed and the entire shipping industry has been affected a lot.
This was the result of the container imbalance problem. The people who lease containers and ship a consignment to some place hopes that container can also be used to ship another consignment back home. But usually that doesn’t happen leading to additional cost as an empty container is not making any money.
In case the exports are more than imports, what happens is that a bunch of containers keeps on piling up in one place creating a deficit in another place. This situation is called the container imbalance.
This situation doesn’t happen often. But during Covid some countries were shut while some were open and this problem increased manifold.
By the end of 2020, demand for consumer goods increased putting increased pressure on global supply chains. This pressure began overwhelming ports across the world.
Dozens of ships remain anchored outside US ports and they wait for days on end to make it inside. Once they finally enter the port, the loading and unloading of containers is not fast enough due to a backlog of ships waiting for their turn. Hence, ships leave their containers behind, further increasing the problem.
This backlog creates unforeseen ripple effects on other arms of the logistic universe including roads, railways, and even warehouses.
Talking about China, the restrictions have been imposed there due to the rise of few Covid cases. Even though the number of cases are not very high, the restrictions are strict.
A terminal at the Ningbo-Zhoushan Port south of Shanghai was shut down on August 11 after one dock worker tested positive for Covid-19 and it’s been operating below capacity since then. This partial closure of the world’s third busiest container port affected the handling capacity of other ports in China. This is creating a lot of problems for people ferrying cargo between the US, China, and other parts of the world.
The major implications of this is skyrocketing of shipping goods across different countries leading to high costs.
More than 80% of trade happens through sea-routes. Hence, this will boost the price of everything including furniture, electronic equipment, toys, etc.
The reason behind this inflation is not only port congestion but shortage of ships as well.
Now, building a ship is not easy, especially during Covid times. It is expensive and takes a lot of time to be up running.
Last year, due to prices being skyrocketed, the shipping companies made a lot of money. They are now using that money to expand their fleet. However, it will be a while before things start improving.
It will take a few months before the order starts coming up on time. Till then, shipping rates are likely to remain elevated for the foreseeable future thereby increasing inflation.
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