The long delivery times and high freight rates for European exports to the USA do not seem to be going away any time soon. Some companies are experiencing increases in freight costs of between 50-75%.
But what are the biggest challenges for exports from Europe and China to the USA right now, and how do you manage your supply chain in these unprecedented times?
The global supply chain consists of countless smaller links, and if just one link breaks – the whole chain breaks. The global supply situation we experience now is caused by the fact that many small links have broken throughout the last year and a half.
One of the biggest challenges right now is just off the US West Coast, more specifically Los Angeles and Long Beach, where some of the biggest ports in the world are located. Here, ships are unable to unload their cargo due to congestion.
Furthermore, we also saw the example with the ship Ever Given that was stuck for a week in the Suez Canal, and we just recently had a COVID-19 outbreak in Yantian, China, where one of the world's largest and most important ports is located.
As in the past, these disruptions cannot be addressed simply by spare capacity, i.e., available ships and containers, on the market, as the capacity is simply not there.
Both ships and containers are too slow to get to where the demand is quickly enough. This is driving up freight prices, while delivery times are still getting longer day by day.
With increased transit times, the existing fleet of containers is tied up for longer and many ship departures are cancelled to regain a rhythm of departures with a fixed frequency.
This naturally increases the transit time for goods, which are therefore typically shipped 1-2 weeks later than originally planned. Several of the largest shipping companies have placed orders for hundreds of thousands of new containers, but it will be some time before these can alleviate the container shortage.
The consequence is that the shipping industry is pushing a mountain of goods and logistical challenges in front of it. Freight rates are kept high (and are still rising) and cargo owners have to put up with slow and poor handling of their goods.
How are the European companies reacting to the market situation and what are the consequences?
In the short and medium-term, European companies accept that the market is extremely disrupted and are looking to fulfil contracts with US customers, which is still the world's largest economy, and thus put themselves in a favourable position from 2022 onwards.
Generally speaking, European goods are relatively highly refined and can probably withstand increased freight costs for a good while.
European goods are relatively sought after, which also means that there is an understanding of the delivery challenges among customers in the USA.
However, in line with the political push by Joe Biden for more jobs for Americans and thus domestic production in the US, European companies need to take this challenge seriously when goods are about 40-60 days in transit.
This is in light of the fact that prior to COVID-19, delivery times were "only" 20-40 days."
To give a concrete everyday example of how extreme a situation we are in: one of our customers, a European company who ships seasonal goods to supermarket chains has experienced 50-75% higher freight costs from 2020 to 2021, which equates to up to more than 4,000 dollars per 40-foot container than in 2020.
This company has been able to meet the delivery expectations of its US customers by adapting production to the significantly longer transit times. Nevertheless, several delivery challenges arise, which are solved through close cooperation between us as the forwarder and our customer.
If you as a European company want to get into 2022 well on the transportation front, it is important that you have a sharpened focus on your entire supply chain in the coming months.
As we stand here in October 2021, in the midst of a perfect supply chain storm, it is important that you micro-manage every shipment and remember to be forward-looking commercial-wise. High freight costs and delays are almost inevitable, so your focus should be on the things you can really influence.
Even though the entire world market is challenged, there are some elements that can bring your company well through the storm.
Communicate regularly with your customers, suppliers, authorities, the public and other key stakeholders.
Digitize your business so that as many routine tasks as possible are done digitally, freeing up resources for creativity, innovation, relationship-building and, not least, research and development.
See your transportation and logistics supplier as a strategic partner and cultivate this collaboration in the same way you cultivate the relationships with your customers.
Ship your goods well in advance to warehouses as close to the customer in the USA as possible to minimize the challenges of long delivery times.
Enter into freight agreements as far into the future as possible while trying to meet the promised quantities to your freight forwarder. In this way, you will build goodwill and loyalty that you can benefit from in future negotiations. Be aware that many carriers are not prepared to enter long-term contracts directly with small and medium-sized cargo owners.
We will have to see what the near future brings, but the indications in the market right now are that freight rates will maintain their high levels well into 2022, so, unfortunately, we will all need to hold our breath a little longer.