BY: DAVID KENDALL
More Doom and Gloom
Container rates continue to surge and have been setting record highs for the past 17 weeks in a row as at the date that I write this update. There continue to be bottlenecks, delays, massive demand and container shortages. All these elements have driven up the rates. The Ever Given incident in the Suez Canal combined with port lock downs in Yantian and the Meishan terminal in Ningbo are only adding to the increasing service disruption. With rates reaching levels never seen before, there is no quick fix and new Covid outbreaks will potentially extend the situation further.
Carrier reliability continues to be very low with most of the top 10 carriers around 30-40%, own from the usual 79-80% reliability. Many importers are trying to manage the situation by pre-booking several weeks in advance, submitting accurate forecasts of availability of shipments, being flexible with regards to equipment (moving 20’ containers as opposed to 40’) and considering premium options, such as charters and the premium ‘guaranteed space and equipment’ services from the shipping lines.
With Golden Week nearly upon us, the Christmas sales rush after the October holiday and Chinese New Year in February 2022 will create chaos in China and rates will further increase. We do not envisage seeing any real change to the situation until end Q2/beginning Q3 2022. In terms of current pricing from China, we are aware of suppliers offering guaranteed charter service from SHA leaving on 05/09 at a rate of US$18,250. Europe has not escaped the industry mayhem. We have seen a couple of clients that have pricing from Shanghai to Hamburg of under $11,000 per HQ.
Unfortunately, what most clients are probably experiencing is that space has been filled on the lower rated contracts and their providers are having to use services at a higher cost. We have got the latest stats from the international agent Bollore – their highest rate on this route for this month is $15,000. Everything seems to be based on a first come first served basis. We understand rates are also set to increase further into Europe at the end of the October.
So what can we do about it?
It is not a pretty outlook, and we don’t have the answers. Every business is different, and the spend levels are of differing significance to the P&L, as is the level of critical or bespoke nature of products coming in by sea. Auditel have a wide spread of clients that are very exposed by the shipping rates, and some of the actions we are seeing being taken are:
- Seeking to use UK based manufacturers
- Changing the nature of resale products to limit the need for imported materials, either changing the raw materials requirement, or pure diversification
- Planned investment to bringing manufacturing in house
- Bringing supply chain logistics in house where possible, be it their own UK road fleet, or chartering flights or boats via alliances with other large import businesses
- Passing on the increase to the end user. There has been a delay in this over the past year, but we are now seeing a general upturn in pricing. This is high risk and an unsustainable strategy though as sales may decrease as a result, particularly if UK based manufacturers can sell a similar product considerably cheaper.
Protecting margins is the key for businesses to adapt to what appears to be a long-term increase in shipping costs. Adjusting to this will be difficult and the process in itself will come with an additional cost burden. We are advising our clients to identify other segments of their business – non shipping based – where savings could be realised to offset or soften the blow.
Auditel now advise on a “Full Scope P&L Review” as our core service offering, it may be a case that increases in £1m in spend may be unavoidable in shipping, but equally there may be a £1m savings concealed elsewhere that could neutralise impact. You will never know until you peel back the surface and take a look, and we have enough intelligence on file at Auditel to be able to make assessments very quickly and at no cost, we treat this piece of work as our risk management and to evaluate whether or not we can help.