Out of stock? Supply chain broken? Portland, get used to it
The price of shipping containers is on the rise. Not the metal boxes themselves: they are made of cheap steel and are plentiful.
The value of shipping containers is a function of where they are.
Right now, they are piling up in the west due to exports from China. The Drewry Index, which measures such things, shows that the price of using a 40-foot container in August 2019 was around $1,500, whereas in August 2021, it was around $9,400.
Brittain Ladd is an executive with PULSE Integration, a leading expert in warehouse design and materials handling. He works on subjects such as "dark stores," robotized grocery stores, and the supply chain challenges in a global economy.
"There are a lot of a lot of containers piled up on the west coast, and because they're not moved very quickly, it does result in shortages in other areas," Ladd told the Business Tribune.
He said the cost of shipping a full container from Shanghai to Los Angeles is more like $19,000 and could reach $25,000.
"There are instances when a retailer or another company may have no choice but to pay a one-off higher container shipping fee in order to secure capacity on a cargo vessel," Ladd said.
This makes it not worthwhile to ship some low-cost, low-weight goods — items such as toys and craft supplies, soccer balls and yarn, or cheap, fast fashion. All of this leads to shortages in the stores in the United States — shortages which could be stark around holidays when people binge-shop for friends and relatives.
Bottlenecks at the ports are the cause. Containers arrive in places such as Los Angeles, Houston, New York and Rotterdam in the Netherlands full, but China is not importing enough goods to make sure enough of them go back full.
"Because there's limited capacity on these vessels to transport the containers, it really doesn't matter that there is a shortage of containers or if there's an excess amount of containers sitting there. It's really what is the available capacity on a ship. And that's what's driving the increased cost."
Ladd said some companies like Maersk are experimenting with crewless vessels to bring empty containers back to China. Without a crew, a ship full of empty boxes is more economical. He said containers fold up to save space, but the hassle of folding and unfolding them slows down unloading at docks, and time is money.
Given skyrocketing shipping costs, he said, "A lot of companies have simply made the decision that they're not going to import anything because they can't afford the shipping cost. A lot of the product these companies ship really is very low value, and the cost of shipping the container is actually more than the value of the product in the container."
However, he says wholesalers and retailers would do well to take a loss on some lower price items to keep them in stock and keep their customers happy. Customer retention is cheaper than finding new customers, so he suggests they eat the shipping costs in 2021 in the hope that prices drop next year and consumers will remain loyal in 2022.
Oddly, the price difference is marginal from Shanghai to Los Angeles as to New York. Going though the Panama Canal does not add much to the container bill.
"It's a fixed amount that's agreed on for a short period of time. So to California, it's about $20,000. New York, New Jersey, it might be $1,000 or $2,000 more, but it's not like $5,000 more or $10,000."
Things that are worth paying $20,000 per container to ship here include electronics, designer clothing and luggage.
"Let's say you and I worked for Michael Kors, and a container of handbags may have a value of $500,000 or a million dollars. If we're paying $20,000 to ship that container, that's nothing, we could care less it's 20 grand. But if you and I are in a business and we sell yarn, or thread, or birdhouses, a container of the product we sell may only be $100,000 or $80,000. So 20 grand to ship a container that's actually going to eat into any type of revenue or profit we're going to generate."
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