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Unchained Melody: Disrupted Supplies and Shipping Containers


In May 1967 the Port of London Authority magazine described ‘an industry in transition, in a time when the shipping industry not just in the UK, but globally, was undergoing changes due to the development of shipping containers. Before containerization, longshoremen dealt with the complexities of loading an irregular multiplicity of cargo. For a vessel carrying 6,500 tonnes in 1963, this would have required 11,000 man-hours to discharge and load with traditional techniques, leading to an approximate turnaround time in a port of five and a half days.


Having first been used during the Second World War, it was truck driver Malcolm McLean from North Carolina, who decided to develop the usage of containers for commercial purposes in the early 1950s with standardised sizes and fittings. This led to decreased shipping costs and time for loading and unloading cargo, although the use of containers did take some time to develop.


Returning to the beginnings of the COVID-19 pandemic in late 2019/early 2020 in China we have what appears to be the start of the problems with global supply chains we are currently witnessing. The inevitable economic consequences of the pandemic were clear in the early closure of many factories across China. This had serious consequences for production, impacting companies and businesses on a global scale. Despite the disruption to production, shipping companies initially saw little changes, although many had already begun closing shipping routes as they believed there would be a reduction in a trade similar to that after the 2008 financial crisis. This proved to not be the case, but as a result container carriers lost 10% of their capacity in early 2020 and prices of containers increased by 115% over the year.


As highlighted by the New York Times, as people globally remained at home, they began to spend money on goods that could no longer be spent on services. This was prompted, notably in the US, by the government granting stimulus packages to taxpayers, and the subsequent increase in importation meant that amid the closure of factories, the US began to import more than it exported. Consequentially, there was a large build-up of shipping containers in the US whilst there was a shortage in other locations. Equally, the sending of containers of PPE to different locations, particularly a number of areas in Africa, meaning there was a further disruption as these are slower to return into circulation. The dislocation caused by this has increased shipping costs, delayed deliveries, and created production problems across the world as the components required become unavailable.


In normal circumstances, a surge in consumer spending would have a positive impact but due to the pandemic high quantities of materials could not be moved quickly enough to the next part of the chain and ports cannot handle the vast quantity of containers arriving due to backlog. This hit a record high at Los Angeles Long Beach, but the main ports in China also saw queues continue to grow too. In China, the later ‘delta’ variant of the virus led to the closure of major ports, notably Ningbo and Yantian in China, which further hindered recovery and large queues at these still persist. This is reflected in that 10% of global container capacity is waiting to be unloaded, something that could potentially be solved by having more ships, although this is unlikely to happen quickly. In March 2021 the Ever Given container carrier which blocked the Suez Canal for 6 days prevented 370 ships carrying $9.5billion of goods from passing through the canal which acts as a major trade route between Europe, the Gulf, and South East Asia.


The ramifications of this are unlikely to be short-term as companies reappraise their production plans and the sourcing of the materials they require. The higher shipping costs and unpredictable delivery times will make shorter supply chains more attractive. Clearly, changing these will not be a short-term solution as alternative production facilities may not exist but the economic pressure will change thinking and alternatives will be found. This pressure also dovetails with political calculations and in turn, becomes part of the growing global competition between the US and China. It seems a little ironic that the simple metal box that transformed the shipping industry, and arguable created the globalised market of recent decades and contributed to the economic growth of China and the Far East may be the same item that brings about its undoing.

For the moment, the now-familiar scenes of congested ports, ships unable to berth, and then hurriedly leaving without their return load of containers will continue. As ‘Forbes’ magazine reported in September “a chain is only as strong as its’ weakest link…and when it comes to the current state of the global supply chain, weakness is everywhere.” Problems are predicted in the lead up to Christmas with ports such as Los Angeles opening around the clock in an effort to move the backlog. However, questions are already being asked about the underlying fragility of the system and the desirability of placing so much reliance upon it.


The problem is that the investment required in maritime logistics is unlikely to take place until the shipping companies know what the future shape of global production will be. Questions like the reliance upon China for manufacturing and the potential for developments in other regions have arisen. Equally, after disruption in the Suez Canal, there is a possibility for such large ships to be replaced by more nimble ships, that whilst may carry less cargo, can travel more quickly and be more efficient to load and unload. Combining this with political considerations of global competition and pressure for ‘greener shipping’ means that resolutions seem a complex and distant possibility.

 

Written by Frances Rigby

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