Anyone involved in international business right now knows all about the Yantian Port congestion, and even if they don’t, they certainly are currently feeling the negative consequences of it.
While many countries have returned to some semblance of normalcy socially, the aftershocks of the coronavirus are still being felt by all those involved with international shipping. As the third busiest port in the world, the Yantian Port of Shenzhen plays an important role in freight shipping between eastern and western economies.
Unfortunately, the Yantian port has recently been operating at just 20 percent of its normal capacity due to an outbreak of a new coronavirus strain in late May. The new safety measures and regulations have led to congestion and delays that will likely continue for the remainder of the year.
How this continues to affect the already strained international supply chain is important to understand for any business if they wish to mitigate the worst of its harmful effects.
This level of port congestion occurs when there simply isn’t enough space available for both incoming and outgoing ships to dock, which has been the case for the past month at the Yantian port. The port has sixteen ports typically available for berthing, but with only four available for daily usage, the line of waiting for freight ships has grown to as much as fifty over the last month.
It’s a classic bottleneck situation where there just isn’t enough space cleared for use, and the time it takes to process the ships when they do find space is longer due to new safety precautions. The new regulations due to covid means there are often seven-day waiting periods, but with this kind of congestion, the actual waiting time has been over three weeks for some ships.
Freight usage at the port in Q1 was up by 45 percent from last year and this trend continued into Q2, making it terrible timing for a crackdown on available usage. Even with teams working around the clock and cutting-edge logistics, the Yantian port simply cannot operate at full capacity at this time. This chronic congestion of the past month has led to delays. These pains are felt as there are simply not enough supplies to keep up with demand.
Demand Outpacing Supply
While the dock itself struggles to keep pace, the demand of the western world for eastern goods has remains as hungry as ever. For some goods, consumer demand has increased by as much as 12 percent when compared to pre-pandemic levels, and other sectors are seeing a similar bounce back this year.
The issue arises in getting raw materials like lumber, plastics, and other essential materials to the retailers and consumers. These goods are at a historically high cost due to the congestion and market anxiety.
Lithium, which is essential for batteries and electric cars, has increased by 80 percent over the last month. Aluminum, brass, and silicone are up by a more manageable 15 percent, but these increases have related sectors reeling. There are simply not enough goods available to sell, and those that do will have a lower overall profit margin due to higher costs.
The effect of this unbalanced ratio between demand and supply is that the little room available on international freight now costs a premium when compared to normal rates.
Increased Shipping Costs
The nature of the current market means that both those who produce goods and own shipping service are in the driver’s seat currently and must charge more to make up for the lower number of shipments that can be processed.
Fuel costs are still at an above-average rate, but what is truly driving the spike of course is available space and additional surcharges levied by container lines for Chinese exports. All shipments are now subject to at least an additional $1,000 charge for any ship loaded at the port, which again eats into the profitability of the products for hungry retailers.
Overall prices have quadrupled for normal freight shipping processed through the Yantian port, and the cost ultimately will be borne by both western businesses and consumers alike. An increase in inflation is expected, and an overall shortage of available goods for the holiday season seems likely.
Western-based retailers in particular are being hammered by this development, and have buyers scrambling to find alternative options to receive enough goods at a sustainable price to stay afloat.
The Options Ahead
While larger companies can stomach the bill of these increased costs, some smaller companies have opted to wait out the storm. This price surge is expected to continue for some time, but there’s hope that by the end of the year rates will return closer to their normal levels.
For those that can afford to delay the arrival of materials, there’s potential here to save some capital, but it is entirely dependent upon their situation and current inventory levels.
International carriers have added additional shipping lines through Shanghai, Hong Kong and Ningbo to try and avoid the Yantian port, but those interested must move quickly to secure space on these vessels.
Going by air is another option, but the classically faster option is even more expensive due to fuel costs, and shipping by land is simply unfeasible for these routes. The Yantian Port has recently increased its capacity up to 30 percent which is promising, but a full recovery is unlikely to occur before 2022.
The problems of the Yantian port echo the same issues that came about due to the Suez Canal incident earlier in the year, and show that while normalcy is within reach, the global supply chain has yet to rebound from the disruption of 2020.
- Featured Image, Unsplash