Yahoo Finance ‘A trainwreck’: 6 steps to a global shipping catastrophe
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Australia is 79 days from Christmas, but shoppers have been warned to get in early or risk disappointment as global shipping costs reach record highs and delays look unlikely to ease.
There are a few reasons for this, and they won't resolve themselves anytime soon, Logistics Bureau executive director Steven Thacker told Yahoo Finance.
"It's a perfect storm," he said.
This is how we got here:
1. Pandemic strands shipping containers around the world
Shipping containers used to transport goods around the world are in extremely high demand, and prices are skyrocketing.
As of 30 September, it costs US$10,360.87 for a standard 40ft shipping container.
In March 2019, it cost US$1,322.73, and in March 2020, it wasn’t much higher at US$1,483.46.
But the problem isn’t a lack of shipping containers: the problem is they’re in the wrong place.
COVID-19 is largely to blame. Most of the world’s shipping traffic occurs between the US and China, and Europe and China.
And the important thing to understand, Thacker said, is the US tends to import more from China than it exports.
“When COVID first hit, demand dried up initially and so the empty containers were stuck in the USA, and the shipping companies weren't prepared to bear the costs of sending the ships back to China, full of empty containers that they don't get paid for,” Thacker said.
“So a significant number of the empty containers in the world are sitting in US ports, and there's no way of getting them back to China.”
This is leading to delays that are several weeks long in accessing containers and loading them onto vessels.
2. Lack of passenger flights adds extra pressure
The pandemic has also hit global air travel - hard.
“There's a significant amount of inbound freight in this country that comes in the belly of passenger planes,” Thacker said.
Using the hull of aircraft to store freight has historically been a relatively cheap way to transport goods.
Without this artery, there’s even greater pressure on the shipping network.
And while the rest of the world is reopening, Australia is still at least weeks away from opening its international borders.
“Global shipping lines are going to continue to be impacted until we see the resumption of consumer air travel,” Shippit founder Rob Hango-Zada told Yahoo Finance.
3. Big ship gets really, really stuck
To make matters worse, in March 2021, the 200,000-ton Ever Given ship got itself wedged in the Suez Canal.
The jokes were hilarious, but logistically, it posed a massive nightmare.
The skyscraper-sized ship was stuck there for six days before it was eventually freed, in what Thacker termed a “debacle”.
Around 12 per cent of the world’s trade passes through the Suez Canal, meaning queues of around 350 ships were seen waiting to get through the blocked canal, completely stalling the global shipping sector.
The problem was, once it did move, around US$9.6 billion worth of global shipping - or enough cargo to fill 900,000 apartments - more or less arrived at its destinations at the same time.
Cue a traffic jam of epic proportions.
4. COVID-19 triggers eCommerce boom
Then we have COVID-19, which severely dented the global logistics workforce.
“COVID-19 has meant that work productivity in the ports across the world has declined because they've got security checks, COVID tests, social distancing and are having to clean out cabins at the change of shift,” Thacker said.
At the same time, people stuck in lockdown across the world have taken up online shopping.
According to Australia Post, it’s now delivering more than 10 million parcels across Australia a week. That’s a volume that was previously only seen during the Christmas shopping and gifting season.
In early September, it said it would have to temporarily pause accepting new deliveries from online retailers in NSW, Victoria and the ACT due to the sheer number of parcels.
It hit pause for parcel pick ups from Greater Metropolitan Melbourne businesses again in late September for five days.
And on Monday, an image was widely shared showing an Australia Post distribution centre packed with a backlog of parcels.
5. Add in a worker shortage
Close to 200 Australia Post staff are in isolation in Victoria due to the state’s Delta outbreak, adding further pressure to a struggling system.
We’re also running low on couriers and truck drivers.
“There's a lack of transport to get it from the ports to where it needs to be, once again ... due to the fact that COVID is affecting truck drivers. There's not enough in the country to start with, and COVID has made it worse,” Thacker said.
Truck drivers in late August warned they needed to be recognised as essential workers, claiming that confusing border pass rules and competing testing requirements have meant they have lost work and led to a backlog in deliveries.
6. Fed-up couriers and stevedores go on strike
Port and courier workers across Australia have been protesting pay and conditions.
The Maritime Union of Australia has threatened rolling 12-hour stoppages every Monday, Wednesday and Friday in October in Melbourne, while the Port of Brisbane would see workers go on a 24-hour strike on 13 October.
The Port of Fremantle already saw a 48-hour stoppage in September, while strike action was also planned for Sydney in the first weekend of October.
The union claims that employer, Patrick Stevedores, was moving to increase workforce casualisation and failing to pass on higher wages to current employees.
Patrick Stevedores forecasts delays of up to a week due to the strike action.
Additionally, up to 2,000 StarTrack parcel delivery employees walked off the job on 22 September, while another 2,500 FedEx workers also took industrial action on 30 September to protest the outsourcing of work to contractors and companies like Amazon.
“There’s this casualisation of the workforce. Historically, courier companies or logistics providers could plan very effectively as they knew how much capacity they would require at any given point in time,” Hango-Zada said.
“With the fluctuations in demand of eCommerce, overnight they’re hit with a massive amount of volume to clear through their warehouse facilities and deliver to consumers’ doorsteps.”
An increasing expectation from consumers that their deliveries will arrive quickly is placing more pressure on delivery providers, who see the solution as taking on gig and casual workers.
“That really flies in the face of a lot of the agreements that these carriers have with their workers, so that really is creating a challenge.”
As Thacker summarised: “You put all of that together and you end up with a train wreck.”
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