Blackwood Analysis: Navigating Shipping Costs

Dealing with original equipment manufacturers across the globe and partner foundries in the Far East Blackwood’s utilises shipping containers on a weekly basis.

The cost of shipping between China and the UK increased by over 350% from December 2020 to December 2021. As a result of these increasing prices, it led to a global shortage in shipping containers which resulted in disruptions to global supply chains and trade channels.

The volatility of prices ensured all global trade experienced a significant shift. These price fluctuations had negative externalities on businesses that rely on importing goods, given that major cost increases will diminish profit margins.

What caused these price increases?

The COVID-19 lockdowns resulted in high consumer demand, and inevitably shipping costs increased as the world went online and abandoned bricks and mortar shops. But it was not the sole cause of the sharp price increases.

Labour Shortages

However, this isn’t the only factor that contributed to the drastic price increases. Another key factor was the absence of labour, given that ports and transportation firms were operating with lower labour capacities it created shipping problems. Whether it was, not enough workers to load and unload ships at ports and warehouses to truck drivers being stranded in countries due to travel restrictions; it led to both delays in shipping times and shipping container shortages which cumulatively led to a surge in price for shipping companies.

Port Congestion

Furthermore, the labour shortages created port congestion, this is where the ports get overly busy with cargo ships and no space to accommodate the goods they’re carrying.

This was witnessed across the ports of America, cargo ships that were enroute out of Asia would unload thousands of containers in ports across America but due to the pandemic restrictions, they were forbidden from reloading the containers back onto the ships to send new products back to Asia.

Correspondingly, the ports began to overfill with containers and led to the production of new containers.

Disrupted Manufacturing Sector

As the pandemic worsened around the Christmas season, China had to close its manufacturing sector adding to the lack of supply in shipping containers. Given that it was the Christmas season, the consumer demand had dramatically increased and on the other hand, containers were in short supply. This meant companies had to ballot for what containers were available and when demand is significantly higher than supply, prices rocket.

Unforeseen Circumstances

The final factor which aided the price surge is lockdown restrictions and unexpected events such as ports having to close or the Suez Canal blockage. Events such as these created further shortages in shipping containers as there was a lack of fluidity in trade movement and so any containers involved were stranded for periods of time.

Correspondingly, the ports began to overfill with containers and led to the production of new containers.

What Next?

As shown in the graph below container price have returned to roughly pre-pandemic rates. This can be attributed to the return of a full-scale labour force allowing for cargo ships to be processed through the ports without congestion build up. Given that there are no longer delays in unloading ships, it increases the availability of empty containers to business meaning there is no longer supply shortages. 

Alongside this, trade has been allowed to resume with Asia out of the American ports ensuring there is a fluid global movement of shipping containers allowing for constant supply. 

There has also been an increase in labour force and lifting of trade restrictions has allowed for the supply-side of the shipping container market to increase, as a result the price has fallen.

Shipping Costs - Graph

Final Thoughts: What does this mean for our customers?

Blackwood Supply Chain Management and Commercial team have worked tirelessly with customers over the last few years navigating the complexities surrounding the supply chain and ensuring there is minimal disruption to customer supply.

With shipping prices now falling to pre-pandemic levels there is an increased confidence that we are over the worst of the disruption caused by shipping volatility. There is a renewed focus on strengthening supply for customers and providing risk mitigation utilising dual/triple sourcing options for customers.

Lastly, the sharp decrease will provide us a chance to provide customers cost-savings and ensure we can assist them in their current and prospective future machine builds.


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