Explainer: Why importers find it difficult to get space aboard vessels

Importers all over the world are presently finding it extremely difficult to get space aboard vessels due to container scarcity, according to BusinessDay’s findings.

Container shortage has become a serious problem in the global logistics industries and is impacting many factories, trading companies, and retail businesses.

It started with the outbreak of the Coronavirus (Covid-19), which began raging from the beginning of 2020, resulting in lockdown in many countries from March/April of 2020.

Then, many countries limited economic activities from April till June. With lockdown, many countries’ economic activities were restricted and the number of port workers was also reduced, causing a reduction in the speed of cargo handling at ports globally.

Also, some factories were temporarily short down and a large number of containers were trapped at ports as the movement of cargo was limited.

Shipping lines, on the other hand, started reducing the number of ships by cancelling sailings in order to stabilise their cost and maintain the ocean freight. They will make losses if they continue to send vessels to port without cargo to lift.

From July 2020, economic activities started recovering in some countries.

First, China was able to control Covid-19 early and due to support from government funding, Chinese factories were able to recover their productions earlier than other countries.

When Chinese factories started to produce, they restarted export activities, and this increased export from China.

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BusinessDay understands that normally, from September of every year, large volumes of cargoes are sent from China to North America for Christmas businesses. The volume of this business is put at about 900,000 by 20-foot containers sent from China to North America per month.

In addition, China has a long vacation called ‘the National Day of the People’s Republic of China’ in October 2020. This leads to Chinese factories trying to send cargoes to North America and other countries before the holiday starts, and the rush to meet this deadline resulted in to increase in the volume of export from China as well.

As shipping lines were reducing the number of vessels, they were also not able to collect empty containers. This was why shipping lines began to control the number of containers exported to China.

To solve the issue of container shortages, shipping lines started reducing free time and detention periods such that some liners reduced free time from 14 to seven days and even less depending on countries. They established a system to quickly collect containers, unload cargo and return the container at ports.

Since there is a lack of containers globally, shipping lines started increasing their ocean freight. This development has resulted in serious global supply chain disruption.

In Nigeria, for instance, importers are finding it extremely difficult to get space onboard ships.

Importers, who used to pay $28 per metric ton of cargo, now pay between $38 and $39 per ton from the United States to Nigeria.

“There is a long wait to get containers overseas to freight goods into Nigeria and the cost of freight has now become extremely high,” Tony Anakebe, a Lagos-based, clearing and forwarding expert, said.

Also, moving a 40-foot container from India to Nigeria and China to Nigeria now costs about $15,000 instead of $3,000 plus charges by shipping companies in the past.

In the United States presently, about 65 cargo ships have been forced to queue outside two of America’s biggest ports due to the latest supply chain disruption that is hitting the US, a BBC report has said.

The ships are stuck outside the ports of Los Angeles and Long Beach, California, which handle 40 percent of all cargo containers entering the country. Before Covid-19, it was unusual for more than one to wait for a berth, and the backlog is linked to surging demand for imports as the US economy has reopened.

Retailers and manufacturers have rushed to place orders and restock their inventories, but the global shipping system is struggling to keep up.

BusinessDay’s finding shows that US-based importers pay as much as $23,000 to freight a 40-foot container that formerly cost about $4,000.

In the United Kingdom, the situation has started crippling businesses as importers that used to pay $2,500 to $2,800 to bring a 40-foot container from China, now pay as much as $16,000 – if they manage to get a booking.

Interestingly, logistics experts say that the current supply-chain disruption would not go very easily as it would likely stay till 2023.

As shipping lines have been struggling to deal with present challenges, and businesses face delays in receiving their shipments, reports have it that their earnings have not suffered.

According to the Sea Intelligence report, 11 of the biggest deep-sea carriers made a combined operating profit of $16.2 billion in the first three months of the year. That was significantly more than the $13.3 billion generated across the entire second half of 2020.