Higher Shipping Costs and Delays in Shipments

Introduction Title of the Article: ʻIʼve Never Seen Anything Like Thisʼ: Chaos Strikes Global Shipping Reference: The New York Times Background Shipping rates are a major component of trade costs, so the new hike poses an additional challenge to the world economy as it struggles to recover from the worst global crisis since the Great Depression. “Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods,   a large part of which is moved in shipping containers, ” the UNCTAD policy brief says. Rates to developing regions skyrocket The impact on freight rates has been greatest on trade routes to developing regions, where consumers and businesses can least afford it. Currently, rates to South America and western Africa are higher than to any other major trade region. By early 2021, for example, freight rates from China to South America had jumped 443% compared with 63% on the route between Asia and North America’s eastern coast. Part of the explanation lies in the fact that routes from China to countries in South America and Africa are often longer. More ships are required for weekly service on these routes, meaning many containers are also “stuck” on these routes. Another factor is the lack of return cargo. South American and western African nations import more manufactured goods than they export, and it’s costly for carriers to return empty boxes to China on long routes. How the issues impact an industry Because consumers expect high quality raw materials, more natural, organic ingredients, brand owners owe it to their customers to provide transparency and guarantee of high-quality products. To give the right experience to the customers, companies must ensure the quality of their products which involves monitoring the temperature of sensitive products that are stored in a controlled environment throughout the lifecycle of the product until it reaches the end customer. Most often, cosmetics are specific and unique due to their composition and are sensitive to certain temperatures and can get damaged due to change in properties of ingredients, which often means the need for special transport conditions. It is also quite common for cosmetic shipments to be handled by multiple stakeholders and delivered long-distances by several (sometimes all) transportation methods which include: road, air, sea, and railway freight, as well as possible exposure to various climate and weather conditions. failure to observe temperature fluctuations (for both raw materials and finished products) may mean the loss of physical and chemical properties of the goods, or in other words, product spoilage. Recommendations Identify your vulnerabilities. Diversify your supply base. Hold intermediate inventory or safety stock. Conclusion The economic turmoil caused by the pandemic has exposed many vulnerabilities in supply chains and raised doubts about globalization. Managers everywhere should use this crisis to take a fresh look at their supply networks, take steps to understand their vulnerabilities, and then take actions to improve robustness. They can’t and shouldn’t totally back away from globalization; doing so will leave a void that others—companies that don’t abandon globalization—will gladly and quickly fill. Instead, leaders should find ways to make their businesses work better and give themselves an advantage. It’s time to adopt a new vision suitable to the realities of the new era—one that still leverages the capabilities that reside around the world but also improves resilience and reduces the risks from future disruptions that are certain to occur.