Anyone involved with international business and trade knows one thing: from early 2020 to mid-2022, reserving space easily on container vessels and paying affordable freight rates have perished. Hurling acrimonious accusations at the coronavirus pandemic is not missing the mark.
Humanity has endured this pandemic for over two and half years. But, as a glut of mild/asymptomatic cases relieve anxieties, many governments (China's excluded) have already begun (since early February 2022, in most cases) to relax their Covid-related entry requirements. For example, Taiwan, the country where Island Leaf Commodities is based, recently lowered its 14-day-arrival quarantine period to three days. So yes, we can all see the light at the end of the tunnel.
However, supply chain snarls have not eased.
Island Leaf has written about the shipping crisis from an international-trading company's perspective a few times. First, in August of 2021, we wrote about our first-hand experience dealing with prolonged delays, rolled bookings, and exorbitant shipping rates. Then, we followed up a few months later, in November of 2021, when we reported on logistics struggles and examined some ports worldwide that had experienced nasty congestion. The November blog also included our reactions to media reports about the shipping crisis.
As we write this blog, in July of 2022, many news sites lack stories emphasizing shipping and supply-chain woes. One might think that global supply chain issues have finally resolved themselves. Unfortunately, from experience shipping scores of containers to and from several continents, the Island Leaf team doesn't believe the supply chain crisis is starting to smooth out. But over the first and second quarters of 2021, we have encountered a few trends that seem to indicate an untying of the first few knots that comprise the supply-chain rats' nest.
This month, we'll speak about the shipping and supply chain situation that Island Leaf Commodities has encountered since 2022's beginning. Then, we'll talk about port congestion, production sluggishness, and how these issues affect consumer-price inflation.
ILC's Experience
For over seven months, since the beginning of 2022, the shipping situation for Island Leaf Commodities continued to resemble that of both the third and fourth quarters of 2022: a painfully slow pace. We have become accustomed to continual ETA push-backs.
Transit Time Elongation
For instance, we had several containers destined for Honduras. The material originated from Australia. We procured these back in early September of 2021. After difficulties getting space on vessels, our loads finally left the glorious land down under before October 1st, 2021. In normal times, the containers would most likely make a transshipment at Tauranga Port, New Zealand, before crossing the Pacific to reach central America eventually. Such a journey would have, in normal times, taken no more than 45 days…between 35 and 40 days would have been more likely.
Unfortunately, we live in strange times. Those late-September departing loads did not cross the Pacific (all vessels heading that way had been booked earlier and at a premium) but went opposite to Sri Lanka for transshipment. Upon reaching Columbo Port, our containers took a four-week holiday from the ocean, finally departing for the next transshipment port at Valencia, Spain.
Then, our loads spent almost an entire season at the Port of Valencia. Finally, in mid-February 2022, the loads arrived in Cortes Port, Honduras. The entire transit time for these containers accumulated to a staggering four and a half months.
Island Leaf also filled several orders for European clients in February and March 2022. Unfortunately, many of our Australian-port-departing loads encountered three-to-four-week delays during this time.
However, starting in April, we noticed things were beginning to improve. For example, transit time from the Mediterranean (Malta) to our Indian client out of Nhava Sheva improved to about 25 days, close to what it was during regular times. Moreover, transit time from Melbourne, Australia, to Port Klang, Malaysia, lessened from an annoying 21 days to under 14—still not the ideal seven to ten days, but better than before.
The current situation has improved. Like the situation from Melbourne to Port Klang, transit time from Jebel Ali Port to Port Klang remained steady at about 14 days. Finally, transit time from Kaohsiung, Taiwan, to Houston, USA, has also hit in our favor, as our forwarder booked containers with a swift 33-day transit time.
Costs and Lockdowns
Although still high compared to pre-2020 standards, freight costs are also marginally improving. For example, we've noticed that rates from Taiwan to major ports in the United States and Europe have decreased by about 15%.
When we step back and mentally process everything we've experienced in the last 18 months, a cautiously optimistic yet very fragile feel blankets the mood in the corner of our minds responsible for logistics cognition. So, we need to emphasize how delicate this situation is.
The latest covid-19 variants are still everywhere, serving as a potential logistics-slowing catalysts. Furthermore, governments' reactions, especially China's, to Covid-19 outbreaks further complicate the current shipping situation.
In addition to Chinese lockdowns and subsequent port congestion, another economic specter has emerged: inflation. Many people, especially in the United States, blame accelerated inflation on the monetary stimulus measures enacted during the early days of the pandemic. While some of this blame might be justified, we believe that most of the consumer-product inflation in the United States and Europe today results from constricted supply due to crippled logistics chains.
Port Congestion: The Lingering Pest
With over two years of Covid-19 under the global economy's belt, we can accurately summarize how specific government actions served as one of the major catalysts for the shipping crisis. In fear of a pandemic-caused economic depression, most governments and passed stimulus measures that anticipated mass layoffs. After the layoffs occurred, many states and cities mandated lockdowns.
Flush with stimulus cash, consumers subsequently splurged on various products from the comfort of their homes. This splurging placed copious demand pressure on overseas manufacturers to drastically increase export production.
Lockdowns and Covid infections have severely dampened port, rail, and trucking labor supply. As a result, container processing time at major US ports, notoriously LA/Long Beach, slowed significantly. Snail-paced container processing also complicated ground transport, sending trucking and rail costs through the roof. So, as of July 2022, in what situation does the economy find itself?
More Cautious Than Optimistic: Zero Covid and Further Supply Chain Damage
Although container costs and transit times have improved, we still want to exclaim a few caveats.
First, we need to talk about China's situation as the world's factory.
Early in the pandemic, Chinese government authorities prevented the first Covid-19 strains from wreaking too much havoc on their economy. They implemented short lockdowns in a few major cities, bringing the pandemic under control. Fast forward to early 2022, and the Chinese government's control over Covid-19 all but slipped away.
China's loss of control over the pandemic stems from two reasons: first, ineffective vaccines. Although many western mRNA vaccines don't provide 100% immunity from Covid, they prevent many, especially those in at-risk groups, from developing severe symptoms. However, and unfortunately, the Chinese-developed vaccines prove about as effective against Covid as a glucose shot.
The Chinese government has thus mandated a strict "Zero Covid" policy. This policy dictates that every discovered Covid case must be tracked, ensuring that those infected are immediately quarantined. In practice, Zero Covid includes providing a testing station at a distance of no more than a 15-minute walk from every residence in significant cities. Zero Covid also compels citizens in high-risk areas to receive more than one daily test.
This policy has triggered massive lockdowns like the ones experienced in Shanghai, Shenzhen, Xian, and other cities from March to June of 2022. As of this blog's writing, new lockdowns in China are currently isolating over 200 million Chinese people.
Zero Covid has grave implications for those involved with international trade. Zero Covid has also affected Island Leaf Commodities. In mid-March, Island Leaf received a signed copy of a Sales and Purchase Agreement (SPA) for an ICUMSA 45 spot order from a Shenzhen-based buyer. The day after we received the SPA, Shenzhen entered into a lockdown that lasted several weeks. Unfortunately, this force-majeure precluded the entire transaction—the buyer couldn't even make a trip to his bank to open a letter of credit.
A less severe but eye-raising, caused-by-Zero-Covid situation occurred just a few weeks before the publishing of this blog. We had some material enroute from North America to Port Klang, which stopped in Xiamen, China, for a transshipment. Unfortunately, this transshipment took ten days. In normal times, transshipment should have taken no more than one or two days. While we're pretty grateful that it didn't sit in transshipment for over three months, as our material bound for Honduras did, the longer than standard transshipment time does indeed grab our attention.
Ground Transport in the US
We've also received notice from our American partners and associates, and from a July market report published by The Plastics Exchange, a brokerage and market intelligence provider, that truck and rail bookings are still arduous to obtain. So the situation on the ground in the United States seems to be quite perilous. But what of the port situation?
In addition to the Island Leaf team seeing swift transit times from Kaohsiung to Houston as an improvement from last year, a market-leading freight forwarder recently wrote that the congestion situation at Long Beach Port has improved. However, improvement doesn't mean "back to normal." Indeed, ships wait up to two weeks to be fully unloaded, and buyers must face additional wait times to transfer their cargo via truck or rail.
While Long Beach Port congestion has improved, what of other US ports? According to the freight experts, between January and May of 2022, many ports, such as Houston, Savannah, New York, and Charleston, have experienced higher volumes of berthing ships than they did during the same period in 2021. And, to put even more stress on the supply chains, booking truck and rail space remains challenging everywhere.
Conclusions
While some shipping lanes in SE Asia have improved compared to 8 months ago, the global supply chain crisis continues. The lack of truck and rail space in the United States only exacerbates this crisis.
The situation in China, fueled explicitly by the Chinese government's Zero Covid Policy, could put even more stress on the supply chain once (this is a matter of when, not if) another lockdown occurs on the Chinese mainland. An extended lockdown could critically slow export containers and processing times; ultimately, many companies realize the risks manufacturing goods in China now entails and are looking to move production elsewhere.
It's ultimately impossible to predict when or if the supply chain crisis will end. But with the damage already done, it's almost impossible to say that international business will return to a pre-2020 world.
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