Most of us watched news reports this week of the huge container ship stuck sideways blocking the Suez Canal. The canal’s temporary closure will take weeks to clear with a 350-ship backlog. These shipping delays will affect us in the United States. Here’s how.
12% of global trade passes through the Suez Canal. The supply chain is already stressed as a result of the COVID pandemic. You may have already experienced some spot shortages of products in stores requiring you to select different merchandise or wait until restocked. Reports suggest Costco, for example, may experience a shortage of some types of cheese being held up in the canal. Fortunately, customers will likely be able to arrange substitutions and continue to provide a good selection for customers. However, other items like exercise bikes may need to go on back order.
The shipping cost is always a significant expense. Less than a year ago the average 40-foot shipping container internationally was priced at a little over $1000. Today the same shipping container costs over $4500. Some international shipping markets are pushing the price for use between $7,000 and $9000 per shipping container. A 30% increase in international sea shipping is pressuring demand. Unfortunately, all these costs are going to be passed on to consumers.
While the Suez Canal closure has exasperated international shipping companies struggling to deliver merchandise timely. Part of the difficulty was that after COVID many of the shipping containers ended up in the wrong place and one shipping company. For example, Hapag-Lloyd currently has 52 ships doing nothing but moving empty containers to locations where they are most needed. Shipping companies are struggling to adjust for the trade imbalance.
Unfortunately, these shipping difficulties spillover to companies like Ford Motor Company and Volkswagen who have cut back on production because of the shortage of some parts. When auto manufacturers are short on new vehicles, the prices will not be discounted.
A number of well-known public companies have warned their investors sales may decline because of the inability to obtain all of the merchandise ordered due to freight difficulties. Just a few of these companies: Under Armor, Urban Outfitters, Crocs, Hasbro toys and Dollar Tree have already advised shareholders that profits will be impacted based on logistical delays and higher cost. And, as we have seen some computer chips are already in short supply which will impact many business operations.
In some situations, shippers have opted for airfreight to speed up delivery. However, a lot of air cargo rides in the belly of passenger jets and with restricted travel because of COVID airlines have less capacity to meet this demand.
Trade has always been an important part of commerce as we read in Ezekiel 27: 16-17:
“Syria did business with you because of your abundant goods; they exchanged for your wares emeralds, purple, embroidered work, fine linen, coral, and ruby. Judah and the land of Israel traded with you; they exchanged for your merchandise wheat of Minnith, meal, honey, oil, and balm.”
Fortunately, the Suez Canal has reopened, and our difficulties are likely going to be minor. In other circumstances, disasters like this one may hit swiftly with far more serious consequences.
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