- Increased consumer demand and lockdowns related to COVID-19 have pushed freight prices and delays to new highs.
- Since most toys and other gifts are made overseas, holiday purchases will be affected.
- Stores may not have what you want in stock and the prices will likely be higher.
- Eytan Buchman is the Marketing Director of Freightos.
- This is an opinion column. The thoughts expressed are those of the author.
Santa Claus has always delivered. But this Christmas, a looming global supply chain crisis may leave parents scrambling, and that’s because of what happened when COVID-19 encountered the cargo.
Sixty-seven percent of toys are made in Asia, compared to just 7% in the United States. Adult gifts are no different. In the first quarter of 2020, two-thirds of all cellphones were made in China. Before the visit to Santa’s Chimney, an intricate and invisible network of liners, airlines and trucks is tasked with delivering everything from Christmas toys to
across the ocean to the stores that bring it to your front door.
But because of COVID-19, this complex network – also known as the supply chain – has been put to the test. A perfect storm of unprecedented demand for goods, port closures, typhoons and travel restrictions has made importing incredibly difficult for businesses of all sizes. The result is inventory shortages and looming product markups as the world prepares for the holidays.
How did we get here?
Quite simply, Americans started buying more things. The pandemic triggered a drastic increase in the consumption of goods because we stayed at home instead of spending on services and travel. On an individual level, this has happened on most people’s Amazon credit card statements. At the macro level, this sparked an explosion in e-commerce, as U.S. imports soared in the first quarter of this year, breaking the record for the first quarter of 2018 by 5%. As demand increased, infrastructure that keeps everything running smoothly has been completely destroyed.
He hit the air cargo first
The planes we fly on also carry a third of world trade under their deck. Air freight is essential for urgent or expensive goods like cell phones, computer chips and flowers. When COVID-19 hit, passenger travel plummeted like a bag of bricks, but demand for essentials soared. More goods had to be shipped, but the available space was reduced by 80%.
As importers rushed to get space on planes, air freight prices soared 400%. Some airlines have converted passenger flights into freight flights. For example, an Israeli airlift was set up to deal with egg shortages ahead of Passover, with egg cartons securely tied in seats. When air freight demand stabilized in October, it was at a much higher baseline than before the pandemic.
Sea freight was next
Five thousand container ships capable of carrying nearly 25 million containers are the backbone of global trade. Before Ever Given container shipping hit the headlines, ocean freight was already in a hurry.
It started with containers in the wrong places. The surge in consumption surprised many people, with container shortages with Asian origins making trans-Pacific transport more difficult. This worsened as the demand for shipping goods increased. The shortages resulted in traffic jams and delays, which made the problem worse.
It is a difficult nut to repair. It takes years to build a container ship, making it difficult to deal with fluctuations in supply and demand. When demand is low, balancing is done mainly by parking ships in port. Last year around 9% of container ships were idled to reduce operating costs. Today almost all ships are in use, but they are still not enough to meet demand.
It used to be a common joke that shipping a container of cargo around the world for a year was cheaper than storing it. In fact, the rates were so low – around $ 1,300 per container – that just five years ago, one of the world’s 10 largest liners went bankrupt. It’s changed.
Today, ocean freight rates are 14 times higher – $ 18,425 per container. Combined with increases in trucking prices, the cost of importing a 40-foot container from a factory in China to a warehouse in the United States has increased from $ 8,410 to $ 25,334. The higher shipping costs will result in higher costs for Christmas gifts, especially larger products. For example, increases in the price of containers can represent an increase of more than $ 1,000 for a sofa.
All sold – at higher costs
Demand may have stretched the infrastructure to its limit, but COVID-19 closures have broken it. The shots kept coming: a COVID-19 breakout in Vietnam that shut down manufacturing, itinerant closures at airports and seaports in China, and the blockade of the Suez Canal – and the months it took to loosen congestion – everything made it extremely difficult to transport goods like Christmas toys.
Global trade is on the brink of massive trade challenges that have extended beyond the realm of freight professionals. Epic congestion means it takes much longer to get goods, with the average ocean freight shipment from China now taking 70 days instead of the previous 44 days, robbing manufacturers of a month of prep time of toys. In many cases, only large companies have the connections or volume to book shipments, so the boutique toys you are considering purchasing may not be in stock.
When these toys cross the Pacific, consumers will have to pay more. Large companies are investing heavily in purchasing to get out of the crisis. Home Depot recently chartered its own vessel and Peloton put bikes on planes to keep up with demand. Small businesses don’t have that luxury. A recent Freightos Group survey of small businesses found that nearly half of those polled said they plan to raise prices to offset rising costs. It has become serious enough to become a key priority for the Biden administration.
So what can the regular vacation buyer do? Head to the stores early, focus on homemade crafts, maybe send an e-card, or choose to buy locally this year. Either way, a (socially distant) sign of gratitude to the next truck driver or logistics professional you meet would be in order. The fact that this is the first time that global freight has really hit consumers is a testament to how well this incredibly complex global freight machine works, even during the pandemic.