There are substantial delays and steep costs associated with the current shortage of shipping containers in Asia. The COVID-19 global pandemic has been taking its toll on many industries, including shipping. It may surprise you to know that roughly 60% of global goods move by container, and according to United Nations trade data there are close to 180 million containers worldwide, as mentioned in a recent Marine Link article. The article also mentions, “the cost of chartering a 40-foot container from China to the U.S. East Coast scaled a record $4,928 this week, up 85% since June 1…Rates to Europe have jumped 142% over the same period, and by 103% to the Mediterranean via the Suez Canal.”
Strain in the shipping industry is being felt around the globe. A recent article published in the Los Angeles Times states, “Sharp, unpredictable swings in economy activity like Los Angeles is experiencing illustrate how the health crisis is grinding the gears of the global trading system. The pileups show the vulnerabilities of distribution systems that aren’t designed for sustained stress, but they’re hardly limited to the U.S.” This information is relevant for any businesses which rely on imports from Asia, and especially those which are already experiencing supply chain stress.
We talked with Eric Newman, Senior Vice President of ProTecht Risk Solutions at Falvey Insurance Group, and got his take on the situation.
How to adapt the diligence process for selecting containers, transportation brokers, or other specifications in this resource-constrained environment
Since it is very likely that the capacity shortage will continue into the first quarter of 2021, it is critical that shippers work with reputable and qualified freight forwarders. Due to the current market conditions and capacity restraints, shippers will have to practice diligent supply chain management and ensure their forecasting is accurate going into 2021 as they may not have the available capacity in the air freight market as a gap solution. Shippers also need to practice diligence when it comes to pre-load inspections of containers. Due to the shortage of containers, the likelihood of shipping companies using old containers that are past their normal or expected service life has recently increased. The use of such containers could put the cargo at risk of increased water/moisture damage due to the existence of holes and/or “light leaks” that are not detected prior to loading. Pre-load inspection should include a diligent internal and external visual inspection of the container as well as conducting an inspection from inside the containers with the doors closed and secured to check for any obvious “light leaks”. Inspection of the rubber door gaskets is critical to ensure they are not overly worn or brittle. Keep in mind that in most cases, the shipping company will select the shipping container, and therefore the shipper has the duty to thoroughly inspect the container prior to loading to ensure it is structurally sound and suitable for the transport of the cargo.
Tips for containing costs without skimping on risk control and prevention
Since the container shortage is expected to continue, at least through 1Q21, shippers need to pay attention to demurrage and detention charges. The average detention and demurrage costs at U.S ports can easily exceed $200 per day. Therefore, it is imperative that shippers are actively monitoring their supply chains to minimize the time loaded containers are sitting at the port post vessel discharge as well as ensuring the prompt return of empty containers to the container terminal. Shippers should never consider “skimping” on risk control/prevention in order to cut costs, especially during unique and unprecedented times such as these which, in my opinion, requires extreme diligence to effectively manage the supply chain and ensure appropriate mitigation strategies are in place to minimize risk.
Advice regarding the protection of goods at bottleneck points, such as warehouses, ports, and transfer stations
Shippers should be cognizant of operations at container ports they utilize for imports as currently there is an increased risk for disruption and delay which requires they have appropriate contingency plans in place. Further, shippers should assess this risk and evaluate the benefits of re-routing shipments through other U.S. container gateways where the risk of disruption and delay are less. As for the protection of the goods, shippers should implement supply chain security best practices that are based on the commodity and the assessed risk or threat level of the lane along which it is being shipped.
Any alternative transportation/distribution strategies that are working for other clients?
Due to the high demand of 40’ containers (SDV and HC), some companies have opted for alternative equipment that is more readily available to move their goods (e.g. 20’ SDV, 45’, Non-Op Reefers, etc.).
If you would like more information about Falvey Insurance Group, go here. If you would like more information about Diversified Insurance Group, go here.