The disruption in the flow of shipping containers that was first observed more than a year ago has, if anything, gotten worse. The spread of the delta variant of COVID-19 around the globe has sent renewed shocks through a global shipping system that at one point in the fall of last year seemed to be recovering.
Chinese port closure
For example, in China, where the COVID-19 virus had been all but eradicated, a portion of Ningbo-Zhoushan Port, the world’s third-busiest, was shut down for two weeks after a worker tested positive for the virus. While officials said the port fully reopened two days ago the shipping snarl that developed reportedly will take weeks to untangle.
And that kind of backlog could very well contribute to rising costs. According to business intelligence firm Platts, the cost of shipping a container from ports in North Asia to East Coast North America rose from $3,375/FEU (forty foot equivalent unit, a standard container volume measure) in July of 2020 to $8,100/FEU in July of this year.
An executive order that US President Joe Biden signed in July may help to constrain that growth. Among other things it directed the Federal Maritime Commission to "to ensure vigorous enforcement against shippers charging American exporters exorbitant charges.” A fact sheet released by the White House in conjunction with the order noted that global shipping competition is declining, with the 10 largest firms now controlling more than 80% of the market, up from a 12% share two decades ago.
Cal Bewicke, founder and CEO of Novato, CA-based ingredient supplier Ethical Naturals, said the shipping crisis is unlike anything he’s seen in his years as an importer of raw materials.
“I don’t think anyone predicted the current extent of disruption in all kinds of trade worldwide. As to when things will return to normal, we’re coming into the busy US consumer holiday season, followed by Chinese New Year in February, and those are just the predictables. The recent closure of a section of Ningbo port, due to one COVID case, shows just how volatile things can be,” Bewicke said.
Wilson Lau, vice president of San Leandro, CA-based ingredient supplier NuHerbs, concurred with Bewicke’s assessment.
“The supply problems have definitely extended beyond what I envisioned. At the beginning of the pandemic, we might have been worried about a particular item, but currently, we have to worry about everything related to that item in the supply chain. And it is everything, from shipping containers to truck chassis to truck drivers to pallets, and that just the tip of the iceberg,” Lau said.
Not just higher costs, but lost opportunity
Both Lau and Bewicke said the shipping issues reach farther down into customers’ operations beyond just having to pay more and wait longer for shipments. It is starting to become a matter of lost opportunity. Shipping containers are no longer moving around the global system in the same predictable fashion as they did before. It has injected a factor of unpredictability into the shipping system that has rarely been seen outside of wartime.
“I think its an issue of predictability or, the flip side of the coin, unpredictability. It has a knock on effect that impacts all parts of the system from processing to importing to production. If you don’t have everything that you need to manufacture an item, from lids to bottles to all the ingredients in a product to boxes, you can’t make it. So how do you do production planning in that kind of environment? I think this is extremely true for new companies that are growing rapidly in particular. How to do you plan going from 1,000 bottles a quarter to 5,000 bottles a month?” Lau said.
Managing inventories
The shipping issue has placed a premium on working with suppliers who have big inventories and are skilled at projections. Nutrition bar contract manufacturer Nellson said that inulin and protein ingredients have both been in short supply, and working with a sourcing partner that has more market pull can help ameliorate some of those issues.
“These are very challenging times,” said Francis Rinfret, vice president of global supply chain at Nellson, which is based in Anaheim, CA. “Extremely demanding supply chain situations across the market and around the world are causing food and beverage brands to struggle to manage their promotional volumes and to assure tighter distribution practices.”
“At Nellson, we are proud of our ability to provide our customers with options and increased leverage in sourcing. Our brand partners benefit from our large volume and footprint, our extensive strategic procurement knowledge, and our solid network of market contacts,” he added.
Lau of Nuherbs said his company has managed the inventory challenge successfully so far.
“We are doing our best to manage our inventory to ensure that our partners have enough material to produce their products. We are prioritizing our existing customers and asking them for projections at least until the end of the year, so we can reserve enough material to make their runs for this year. This is always the most difficult time of the year for companies specializing in botanicals because a lot of herbs are being or about to be harvested, meaning that there is less existing material in warehouses as we await the new harvests. With today’s higher demand and all the shipping delays, this lean period could be problematic, and probably is for some. But, so far our projections and planning have been pretty accurate, so we feel good,” he said.
Don’t expect it to end soon
As far as when the crisis will ease, both Bewicke and Lau said they’re planning for a long period of pain.
“During the spring, I was telling people my best guess was that we would see more normality by March / April of 2022. If things stay the way they are with product demand and the challenges of COVID, I am thinking we will all be dealing with shipping problems at least until end of 2022 and most likely into 2023,” Lau said.
“Someday I expect we’ll return to a ‘new normal,' but I can’t say when that will be. The positive that’s come out of this situation is that many of us have come to see again the value of strong, dependable and well-invested supply chains at every level. That’s the way we move forward, by supporting each other in the quality investments of time and resources that we make into our industry. This goes for every step in the supply chain, from the field to the finished products,” Bewicke said.