John Ogilvy, Branch Manager of OEC Group’s St. Louis Office, discusses the global equipment imbalance issue.
What is causing the global equipment imbalance issues?
COVID – 19 is at the core of the imbalance issues. Our global market is too interconnected to have a major country’s economy, a global supplier, or a large-scale consumer completely shut down for a long period of time without causing significant ripple effects. The global supply chain is resilient and flexible; however, when stretched to the extremes as we have seen over the last year, challenges to that delicate equilibrium begin to emerge. Reliability has dropped, and stresses exerted on “just in time” inventory systems have been exposed. Revenue opportunities aggravated the issue, as well. Lanes with the largest potential revenue take priority in container repositioning, making operations worse for smaller, lower volume transshipment ports.
Has the global equipment imbalance influenced carrier contract negotiations and shipping rates?
Short answer – yes. Ocean rates are historically high, and they are being primarily driven upward by wild fluctuations and volatility over the last year. One of the most interesting causes of exploding market rates is the drastic rise in consumer spending. Those fortunate enough to have remained employed pivoted from spending paychecks on vacations and dining out to material goods, many of which are imported from Asia. We have seen significant market growth in industries surrounding household goods, exercise equipment, furniture, and home improvement materials, causing enormous increases in demand and stock-out scenarios all over the world. Because demand is outpacing supply in these sectors, unit costs have risen, and carriers are capitalizing.
Which shipping routes have been the most acutely affected?
To put it simply, every single trade lane has been disrupted in some way by the pandemic-induced market. Generally, demand far outpaces supply, and this imbalance translates to historically high volumes and historically low carrier reliability.
What advice do you have for clients who are struggling to find adequate equipment?
First, plan as far out as possible. The days of booking an ocean freight shipment this week and having that container depart the following week are gone. Typical industry standards now require 4-6 weeks advanced booking. Second, plan on longer transit times. Port congestion, longer booking lead times, longer inland rail transit times, and additional virus-related regulations will impact your shipments. Finally, discuss your individual supply chain needs with your logistics provider. Switching to a new manufacturer or manufacturing location for a large project with a tight delivery window is not as simple as it once was. There is too much going on these days to think, “Space will always be available, and it’ll be easy to get product from one point to another.” Bring on an experienced partner early in the process. While we do not have a crystal ball, our experts have insight that will benefit your decision-making process.
Do you see this situation being resolved any time soon?
I believe that the market conditions are only going to worsen in the coming months. May is worse than April, and carriers are already booked solid through June. We will roll right into peak season for U.S. imports without the normal slack season that follows Chinese New Year. In an attempt to reset sailing schedules, carriers are blanking sailings and skipping major ports of call around the world. These setbacks are far beyond your control. In the current market, it’s not about maintaining transit time integrity, but managing expectations. If you speak with your logistics provider, plan for delays, and prepare clients for such events, these unpreventable issues will have a muted impact on your supply chain.