The perfect storm of issues pushes container rates over $10k
Piracy, conflict, bad weather, a shortage of containers and greedy shipping companies have combined for a perfect storm of difficulties bringing greeting cards, calendars, crackers, wrap and giftbags into the UK from the Far East.
Since pirates and the Israel-Hamas conflict made the Suez Canal route from the Far East and China too dangerous, container ships – which are all controlled by just four shipping lines – have been forced to divert around southern Africa, adding around two weeks to every trip, not to mention much higher costs.
“We’re currently seeing rates approaching $10,000 (£7,900) per container on a take-it-or-leave-it basis from the shipping lines,” said David Byk, ceo of Swan Mill Group which owns Ling Design, GBCC and Penny Kennedy, “even their largest worldwide customers who have fixed contracts we understand are having those reneged upon by the shipping lines.
“Contrast this with container rates of under $2,000 (£1,582) at the beginning of the year. It’s a massive increase.”
David explained that it’s something of a rerun of the soaring costs of shipping during the pandemic where prices reached $18,000 (£14,237) per container.
He elaborated that the sudden and surprise spike in ocean freight rates has been exacerbated by importers filling sea transport with Chinese-made electric vehicles and solar panels in a frantic bid to beat the EU’s threatened import tariffs of up to 38% expected to start this month, on top of the existing 10% tariff.
Yemen’s Houthi rebels have been targeting ships in the Red Sea, where the shorter shipping route through the Suez Canal exits, starting with those that had links to Israel since the conflict with Hamas in Palestine blew up in October last year but now expanded to attacks on any ship in the area.
It means an Asia to Europe and back round trip, which should take around eight weeks, is now lasting 12 weeks resulting in one third less capacity in both shipping and container availability for product in China.
David added: “Some freight forwarders unable to get enough containers for their customers are back to the wild west era of shipping where you have to pay more and more to get a container and a shipping booking, hence the price going up so high.
“As is so often the case, dates and amounts aren’t clear so everyone is importing madly. If some of the recent spike in demand is the evs, etc, on top of the Houthi factor then we can expect global shipping prices to come down again – we were hoping to see that in June but, sadly, at the beginning of July prices are higher again.
“For an industry that is heavily dependent on China for Christmas card boxes and gift packaging plus gifts and stationery this puts a heavy strain on many of us, not only for cost but also on time availability.”
At Danilo, md Daniel Prince has seen shipping prices rise on average $500 (£395) a week over the past three months to the current $10,000 (£7,900), with some shipping lines moving larger vessels from the European routes to US routes, further tightening the space availability to this side of the globe, as well as changing other routes.
“It’s shipping companies’ pure greed – a perfect storm created,” he said. “We have had agreed prices with retailers by March, so it’s the publishers who suffer. It’s also taking eight weeks to get stock. The shipping problem been going on since December but, funnily enough and ironically, they’ve only raised prices in the last three months. Pure greed!”
Finding ways to deal with the shipping container capacity crunch is key. UK Greetings’ operations director Richard Wilkinson told PG Buzz: “We are monitoring the situation closely but, with it being at the beginning of peak shipping season coupled with the longer transits to avoid the Suez Canal and bad weather in Asia, it has hit the flow of trade on key routes.
“We are also seeing ocean carriers skipping ports or decreasing their time at port, and not picking up empty containers, in an effort to keep vessels on track for delivery.
“We are forecasting our sea freight costs to increase significantly during the coming months. We will continue to absorb rising costs as much as possible, while continuing to find ways to mitigate the unplanned financial headwinds.”
Adding their views, Hallmark supply chain director John Franey said: “In line with many businesses, Hallmark will feel the impact of the rising shipping costs. We are working hard internally and with our supply chain to mitigate the impact of these costs.
“Variability in shipping rates is a known risk when importing. It’s based on global supply and demand and is difficult to predict with any certainty. It’s impossible to mitigate all of the risk and we’re unable to pass this risk on to our customers and consumers so, where we see longer-term changes, we adjust our supply chain accordingly.”
For Deva Designs the impact is far less for the company than it was during Covid because co-owners Andrew Maddock and Ann Rogers changed their business model to ease the issues.
“Wind the clock back to the middle of Covid times,” Andrew told PG Buzz, “Ann and I sat alone in the office, knowing we needed seven containers to bring the stock over for our Christmas orders. Our freight forwarder had to go into a bidding process to try to secure containers for us. We were bidding £18k each only to be told the following morning that we’d lost out to a higher bidder.
“There was no way we would let our customers down and we just had to keep pushing upwards until we finally secured all the containers we needed. It was crippling at the time and very stressful for us and we just looked at each other and said ‘never again’!
“So, with a combination of approaches, from working with our key customers’ own forwarders to re-sourcing from Europe where possible, this year we only have one container needed for Christmas.
“We have to accept things that are out of our control, such as the current container situation and try our best to limit its impact on our businesses – one thing’s for sure, I know our customers wouldn’t appreciate a sudden hike in prices passed on to them.”
At Cardology, co-owner David Falkner only ships less than a container load in quantity but he explained: “While our shipping volumes are far smaller than the big industry players, the proportional impact on the bottom line of a smaller business can be even greater.
“When shipping agents are re-introducing pandemic policies in 2024, it’s reasonable to conclude the market alone isn’t working and the natural bottlenecks – how quickly can you build a ship? – mean someone’s out there making supernormal profit, which it’s not always possible for us to just absorb, as hard as we try.
“But it’s not just the cost – the additional lead-times are a problem, which is why we value so highly our customers who plan their orders. We also know we’re working with the best when these same customers ask us pertinent questions ahead of time – such as what factors should responsible suppliers be anticipating.”
He said there’s a Catch 22 situation that, if left unchecked, inflation is fuelled as the prices increase but if shipping is too tightly regulated here in the UK, the ships will just divert to more lucrative markets, exacerbating the problem.
David suggested one answer might be to use the freeports here now the UK is outside the EU to better incentivise exports “with the added bonus that, if these incentives work, they would naturally offer additional capacity on boats coming into the UK, further decreasing CPI inflationary pressures”.
David Byk is hoping the EV factor “will disappear” leading the four huge global shipping companies to “stop behaving as a consortium and break ranks as they did post-Covid”, and he added: “Prior to the Houthi and EV factors global shipping was at low pricing due to the worldwide cost-of-living crises impacting global demand for product.
“In reality all these enormous container boats are controlled by only four shipping lines and the seemingly cartel-like behaviours do appear to break when they have to chase capacity as nobody wants a partially-empty ship.”
The volumes his business deals in – 14million Christmas crackers for the supermarkets is one example – means the scale of production can only be met in China, David said they had “forecast requirements for Ling and GBCC and brought some Christmas product into the UK at the beginning of the year which we haven’t done before” having anticipated the problems when the Houthis started to disrupt shipping.
With the busiest time for Christmas stock movements traditionally being August they made arrangements to ship products earlier, and he added: “We increased stock levels of our everyday product due to increased and irregular shipping times.
“We also made sure all our Christmas product was ready to be ordered as per our revised critical path and were hard on closing dates for orders – I’m pleased to say all our Christmas stock is either in our warehouse or on the water. This should mean we hit customer dates despite the longer shipping and lack of availability of both containers and boats.”
However, David expects it to cost the company at least $200,000 (£158,200) more than budgeted, which Swan Mill has to bear – and that will only increase if the issues carry on into the fourth quarter. A lot of product is shipped directly from China, meaning the retail customer pays for it, so the supermarkets and other major multiples will also have to accommodate massive increases.
He added: “The longer this goes on the worse it will be for all of us but at least we can be pretty confident that we can deliver Christmas on time from Ling, GBCC and Penny Kennedy and, at this point, are doing everything we can to mitigate the requirement for a price increase on our branded products to support our customers.”
