The supply chain crisis has a silver lining – container ships should be decarbonized faster

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Several months ago, I warned that the container ship crisis could put Christmas at risk by leaving retailers without enough merchandise on their shelves. Since then, similar fears have spread across all media, not only due to shipping issues, but also shortages of truck drivers and unavailable products. As November approaches, the worst may be turning out to be the worst.

It is a classic mismatch between supply and demand. On the one hand, people all over the world have managed to save over $ 5,000 billion (£ 3.6 trillion) during the closures and wanted to spend some of it now that the restrictions were lifted. This is why the global economy experienced a strong recovery in 2021, with the IMF predicts that global growth will be 6% for the whole year. According to an intelligence report shared with me by a shipping broker, this additional demand resulted in more than 119 million shipping containers between January and August, 6% more than the equivalent period in 2019.

Supply chains have not kept up with this increase in orders. Ports struggled to load and unload container ships quickly enough, with nearly 600 of container ships stranded outside mooring areas around the world – nearly double the number at the start of the year.

Ports are understaffed as many workers are kept away from the site by COVID-19 restrictions. There aren’t enough containers, as ships that would normally pick up empty containers to return to ports in Asia have instead returned empty-handed to minimize delays.

If you’re expecting a package, it’s probably somewhere here.
EPA

There are also not enough truck drivers in many countries. It has become well known that the UK is running out of some 100,000 drivers, partly because of Brexit, but Germany is short of around 80,000 drivers, while the EU as a whole is short of 400,000. This exacerbates the problems with containers.

For example, Felixstowe, the main UK port for container ships, is full of containers because there are not enough drivers to pick them up. This delays the loading and unloading of ships, creating a wait of four to seven days. Large shipping companies like Maersk have instead been re-routed to mainland ports, where goods are reloaded onto smaller ships to return to the UK, significantly slowing deliveries.

Another very important problem is the lack of raw materials and components. Suppliers have been taken aback because they had not anticipated such massive demand and are not as efficient as usual due to COVID. They have also had to deal with energy shortages in countries like China as governments try to meet carbon emissions targets. This means that many products cannot be finished with the most recent and high profile example being Apple would have production of 10 million – 11% – iPhone 13 stopped due to a shortage of chips.

The good news

For all of these reasons, there’s a good chance you won’t get exactly the product you wanted for Christmas in 2021. But how long is this going to last?

According to another report on private shipping, a group of global logistics CEOs were recently asked when they expected normalcy to return to supply chains, and only 37% believed this would have happened by the end of 2022. The rest was split evenly between Q1 and Q2 2023.

My opinion is that it is too pessimistic. We see the first signs a global recession, with a slowdown in China and the United States and central banks potentially on the verge of making matters worse decreasing the “money print” of quantitative easing, or even rising interest rates.

Along with rising consumer prices, especially gasoline and gasoline, it will make people more careful when shopping. They will start using some of the $ 5,000 billion saved to cover more urgent needs, such as heating their homes, so the demand for goods will drop sharply as a result. It won’t happen fast enough to take the strain off supply chains this side of Christmas, but it will help them rebalance in 2022.

The supply of goods will also have increased due to suppliers’ investments in additional capacity in response to current shortages. For example, again from a private report from a shipping broker, container shipping companies have placed record orders for new vessels with a total carrying capacity of 3.4 million TEUs (the standard measure of sea ​​transport capacity, which means “equivalent to 20 feet”). . This is 22% of the entire world fleet.

Unloading at Felixstowe
Where the magic happens.
EPA

Another good news concerns decarbonization. Most container ships still run on fossil fuels with industry seen as responsible for nearly 3% global carbon emissions. Changing that will cost several billion pounds, and a group of large companies including Amazon, Ikea and Unilever have Just announced that it will only use zero-emission ships by 2040.

Against this backdrop, there is a silver lining in the fact that the shipping problems of 2021 made freight rates extremely high – around ten times their usual levels. This has made the shipping companies much more profitable than usual, and they will hopefully use some of this windfall to invest in ships that can run on green fuels, as well as new capabilities such as having more control over their speed. When ports are congested, for example, it would allow them to reduce carbon emissions by traveling slower in order to arrive at a time when they have been notified that a berth will be available.

Even then, the major shipping lines are likely to maintain high freight rates after the standardization of supply chains to help pay for the decarbonization of their fleets. So while I’m confident that supply chains will resume normal operations in 2022, it won’t be anytime soon that we see transportation costs as cheap as they were in the pre-COVID era. This is perhaps one more reason to rethink our global procurement model for bring production closer to consumers. Again, that would probably be good news for carbon emissions.


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