Carriers get high rates but low ratings, as supply chains slide into chaos

Credit: Dreamstime

Looking back at the last year in logistics, it’s hard to know where to begin, because so much has happened, but probably the biggest issue we’re facing here in the UK is ocean freight from Asia. You probably know that Asia-UK is the UK’s largest trade lane and anything which destabilises that is going to affect everyone in the supply chain, right down to the most normal everyday activity, like a trip to B&Q to buy a set of garden furniture or a barbeque.

Everyone in logistics knew that the accident in the Suez in late March involving the Ever Given vessel would cause turbulence for a month or so but no one thought that freight rates would continue to climb, even after 3 months – but they have.

Today, a 20-foot container from Shanghai to Felixstowe will cost a hard-pressed importer around $8-9000 as the supply-demand equation has for once, fallen in the lines’ favour. No one in logistics, be that forwarders or importers can really get their head around paying $17,000 for a 40ft high cube but it’s here and yesterday I was told we’ll hit $20,000 by July. Crazy, right? It seems like a fairy tale but 13-14 months ago, the market rate from Shanghai was around $800 for a 20ft general purpose container (GP) and many large importers paid less.

The most glaringly obvious solution would appear to be for the shipping lines to lay on more services (creating more capacity) and get things back to something manageable for importers but there seems to be scant evidence of that and I now hear that the lines are signing fewer long-term contracts and pushing customers, large and small towards the erratic and extortionate spot market.

And it’s feeding through into shipping lines’ coffers. Apparently, Maersk made more profit in Q1 than the whole of 2020 and market rates have risen sharply since then. The goose and the golden egg tale would appear to be apt here but what are businesses supposed to do? If your manufacturing plant which depends on raw materials from China wants production to continue, you just have to pay, or someone else will happily take that container.

What worries me and I’m sure many others is that UK importers surely cannot continue to pay these outrageous freight costs as their margins are being decimated and if they’re supplying a major UK retailer for example, they may be locked into a restrictive annual contract on price and delivery so they just have to keep on burning cash and hope freight rates will fall. They won’t, not yet anyway.

The problem is that although the lines shouldn’t want to “kill the goose” it seems they have no regard for their direct customers (predominantly the freight forwarders) most of whom will have partnered with them for many years on a core carrier basis.

The serious concern is that with the lines’ attitude to their customers apparently hardening, and the beginning of Peak Season 2021 starting in August, only four – five weeks away, many in the industry including myself see little chance of a respite in rates until after Chinese New Year 2022 (let’s say Apr/May 2022) and by that time I fear that many small and medium sized importers will run out of cash, gone bust and in the process seriously exposed many UK forwarders (who have already had to massively increase their credit exposure to these customers).

It’s a sad day when our government is most likely completely unaware or disinterested in what is happening in the real world of business and our supply chains, maybe thinking that “it’s just a market” because many forwarders and importers alike actually feel that what we’re really witnessing here is a complete abuse of market position by the lines. This will surely have serious ramifications on cash flow and liquidity for these businesses and mean that 2022 will see the UK economy falter as businesses fail, inflation will take off and consumers will cut back. Another perfect but avoidable storm and no one seems to be listening, certainly no one who can make a real difference.