How to Handle Shipping’s New Normal in the Global Agchem Industry
Just when you thought pandemic-influenced shipping rates and delays were going to ease up – more than 18 months after COVID-19 shutdowns began – they continue to break records, just in time for peak season.
While the holidays may not be peak season for the agriculture chemical industry, these other moving goods will further limit global shipping’s availability, spiking costs across the board.
Understanding what’s happening and using strategic avenues to minimize delays can help agchem companies avoid losing too much time and money.
Shipping Costs Continue Breaking Records
So many things have impacted global shipping this past year and a half. Not one supply chain expert didn’t think or predict the situation would begin to improve at some point before this point in 2021.
In fact, in his decade of studying global shipping, Keith Holdsworth, a senior supply chain consultant with Perfection Limited, based in West Oxfordshire, England, has never experienced a period when rising shipping rates didn’t almost immediately reverse themselves.
“Either one shipper raised rates to try and make more money but then dropped them quickly to remain competitive when others were willing to ship for cheaper prices,” he explains, “or supply and demand leveled back out and rates naturally dropped.”
Today, however, demand is outstripping capacity, so prices continue to rise.
As of press time in mid-August, container shipping rates from Asia to the U.S. and Europe increased to new record levels. The spot rate for a 40-foot container from Shanghai to Los Angeles is 236% more than it was one year ago. The composite index, which reflects eight major trade routes, hit a 339% surge from last year.
What’s to blame? A container shortage along the busy transpacific lane, port congestion, COVID-19 operational changes, and lack of labor are the main causes. “Goods in containers are flooding into the biggest U.S. gateway for seaborne trade at five times the volume of steel boxes full of exports,” Bloomberg reports, adding that online consumer spending increased 44% between 2019 and 2020 pushing demand.
Enter New Surcharges
Shippers operating beyond normal capacity are implementing peak season surcharges well ahead of the usual August-to-October peak timeframe, in order to try and bring in more revenue and increase capacity. Their hope is that this will also slow down shipping by weeding out those companies that won’t pay the surcharges.
The surcharges, averaging around $2,000, depending on the shipper, pile an additional 10% to 20% onto the total shipping cost, Holdsworth says.
“Now you’re paying a premium for shipping … and there’s no improvement in the quality of service,” Holdsworth says. “If anything, you’re getting a worse level of service with longer delays than pre-COVID-19.”
This is because even though you’re paying a premium, there’s still no real guarantee your package will arrive on time. There’s guarantee language used along with the surcharge, “but hidden away in the clauses it says they can’t actually guarantee packages,” Holdsworth says. “If a ship is only at the port for five to seven days and you pay a premium, they’re saying they’ll try and load your product ahead of others. You might be higher up the list, but it doesn’t necessarily guarantee anything.”
While the shipping cost increases and additional surcharges sound massive, the container contents are still worth a lot more than the price of shipping, so companies are actually willing to pay the prices. After all, if they don’t receive shipments, they suffer greater losses on the inability to sell those products. So, shippers’ strategies to reduce load with surcharges may not actually alleviate any demand in the end, experts say.
From Sea to Land: Problems Continue Along the Supply Chain
While ocean shipping is one big part of supply chain delays and challenges, the problems continue on the road.
Because imports are outnumbering exports, there are labor and space shortages at marine terminals, creating bottlenecks.
To try and combat this, ocean carriers are making last-minute changes to sites where truckers can deliver empty containers, forcing extra trips, which adds up in time and money, according to Richard Marks, vice present of drayage operations with Next Trucking.
Average container and chassis dwell times – or time that cargo containers spend in temporary storage facilities in transit – have increased from three to seven days, Marks says. If a driver can make three or four container moves on a typical day under normal conditions, these changes drop that efficiency by nearly half, he reports.
In addition to a shipping container shortage, warehouse and shipping yard delays are also creating a shortage of chassis – the trailers that transport shipping containers on trucks. Marks reports that fulfilment is around 16% because chassis can’t come back to ports quickly.
So while more drivers is needed, doing so won’t help if there isn’t more capacity to move containers efficiently.
Strategies to Mitigate Supply Chain Risks
Agrochemical businesses can do a number of things to stay ahead of supply chain delays.
First of all, one cannot rely on what they used to do. Being strategic and planning earlier, finding options that work, will continue to be necessary, Holdsworth says.
While inventory challenges and cashflow are always a concern, this is not the right time for companies to go particularly lean with their inventories.
“Because ocean shipping is so unreliable, you have to eradicate variability in areas where you can,” Holdsworth says. “Maybe you used to plan for low inventories but now you’re increasing your inventory on hand. This way you don’t go into peak season without having what you need available to sell.”
Another option Holdsworth suggests is using air freight. “You can use air freight to fulfill a contract while waiting for your ocean shipments to arrive,” he explains, “but it can more quickly burn through your profitability, so people usually use this sparingly.”
Holdsworth doesn’t predict a decrease in shipping rates at least until April 2022 – past the typical rise that follows Chinese New Year in February 2022. Agchem companies that continue to embrace creative shipping and supply chain tactics through mid-2022 will be least likely to miss key active ingredients or other products in time for when farmers need them most.
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