GLOBALIZATION NEEDS REINVIGORATION PART 4 – 2022 APRIL

We found freight cost to have risen at an average of seven times compared with the pre-pandemic level. Something known as shipping bottleneck which has never been heard of, has threatened to hamper the global economy as it would continue through 2022. Shipping space will remain tight, freight cost will remain high, and for the manufacturers and retailers, they will all need to endure chronic delays. It will bring inflation.

We believe that the transportation problems are global, but some executives and analysts believe that if the ports of Los Angeles and Long Beach, the U.S. gateway for Asian imports can be cleared, the bottleneck can be solved. It is the outdated infrastructure, the inability to operate 24 hours and seven days during the week, unlike their Asian counterparts, they would find it hard to solve the severe congestion. But the inefficiency at the ports and the shortage of truck drivers are not easy to solve as the system has been unable to cope when the demand surge under unexpected circumstances.

To restore order to the supply chain is to have closer alignment between the governments on coronavirus measures through an international recognized protocol design to protect key transportation workers. Last year, with China’s closure of two of the world’s five busiest container ports—Shenzhen’s Yantian Port and Ningbo-Zhoushan in China, because of the Covid outbreaks, they caused the port congestions in the U.S. Not to forget that China has seven of the ten largest container ports in the world and if they still continue the net-zero strategy, the damage they can create will be unfathomable. We have already seen that cities like Xi’an and Tianjin, both with 14 million inhabitants, being lockdown.  

How the West and China can come to terms about the way to treat the coronavirus, the Omicron variant seemed to be the mainstream, would bring the supply chain more in line with what the world needs today. Unfortunately Beijing is using their strategy as the best solution over the West’s attitude and for Xi to come to agree with the mainstream would be difficult.

One thing that is worth mentioning is the basic existing problem of the shipping line. It has been plagued by excess capacity and the shippers have been undercutting each other in the last two decades. Shipping cargoes in containers was so cheap and even with this increase now, whether it is the current seven-fold or even a ten-fold, is still a very small fraction of the price a consumer will have to bear.

And during the last decade, the world’s top shipping lines ended up forming three shipping alliances and share their cargo space on voyages. Today, the world’s nine carriers control 83% of the total tonnage.

The consolidation, the continuous investment to replace the container vessels with new ships, bigger and more fuel efficient and observe the stricter emissions requirements, all this will now use the higher rates to offset.

The business world will need to learn to live with the higher freight rates and to build them in as part of the cost and the inflation that it will bring.

It will form as part of the revamping of the supply chain which is absolutely necessary now. It was brought up by the pandemic and we know that if we don’t change we won’t survive. We ought to take it as the migration to a new supply chain model and cheap is no longer the solution.

Meanwhile, looking at the ports along the sea routes, reduce the number of port calls in their networks would help to speed up the journeys. Instead of calling every port directly, use feeders to carry the containers at the connecting point can bring the journey faster and more efficient. This port consolidation will allow us to look into the bigger picture for a more efficient globalization. It is too early to say how will this look like eventually, but it is the time to allow us to look at things from the new perspective and hope that the change will be a better and more meaningful change.