Ocean Shipping Update
What Do You Mean My Coffee Is
Going To Be Late?
Undoubtably you have been hearing about problems with worldwide shipping for months. At ICT, we believe it is our role to be quietly competent at what we do and get your green coffee to you on time and for the best price possible. You as a roaster have a lot of things to worry about, and we have been trying to keep this one off your list. But the reality is, that we agree with other transportation industry leaders who are saying they have never seen anything like this. We thought it was time to communicate what we are up against, and what it might mean to your business so that you can better plan.
How Bad Is It?
As of this writing, shipments from the far east are backlogged by 8-12 weeks or more and by around 4-6 weeks in Central and South America. Predictably, shipment costs have risen accordingly (25-50%). We are seeing carriers simply refusing to honor service contracts and cancelling bookings that have already been made with little warning and no explanation.
At the heart of the problem is a lack of shipping containers in the right places to facilitate shipments. This happened during the massive shipment disruptions of the pandemic, and resulted in containers being log jammed in the wrong places.
The backdrop was a shipping industry that had already gone through a consolidation process, making space very tight. After an initial massive drop in shipments, consumer demand spiked and now we are seeing shipping demand at levels that are around 15% above previous comparable levels. This all has placed stress on the entire supply chain that is also dealing with the impacts of COVID 19.
There are significant backlogs at ports, warehouses and throughout the Rail and Highway transportation services. This “Perfect Storm” of events has resulted in 11% of containers arriving on time during March in the US. A week ago, we were looking for some easing to start in May…
And Then That Happened…
In case you have been taking an intentional break from the news since last Tuesday, one of the world’s largest container ships, the Ever Given was grounded in the southern portion of the Suez Canal, effectively blocking all transit. This will have a significant impact on worldwide supply chains as it is a major thoroughfare between the far east and Europe and the Eastern coast of the United States.
Between 50 and 85 ships transit the Suez Canal daily (12% of the worlds trade) and as of this writing salvage crews have only just been able to free her. There are approximately 327 ships being blocked at each end and 40 ships delayed inside the canal. With a maximum a throughput capacity for the canal of 106 ships per day, it is going to take a couple weeks to get things back to normal.
The intricate dance of getting these massive ships through safely is quite impressive and is illustrated well on the Suez Canal Authority’s website here. On Sunday, Maersk announced that it had diverted 15 ships around Cape Horn because of the expected amount of time to get things back to normal. We have been relatively fortunate and only have a few containers affected but this just illustrates the fragility of the worldwide supply chain, particularly when it is already stretched so thin.
Ok, So How Should I Be Responding?
At the moment, ICT has good inventory levels in our warehouses for most origins but there are definitely a few being impacted, such as Ethiopia and Sumatra. We cannot predict when shipping will return to a semblance of normalcy and we are not sure what the new normal will look like, but there will likely be a measurable pricing impact and the shipments will arrive later in reference to crop cycles.
For now, we would recommend that you contact your trader to go over your position and projections for the next 6 months at a minimum. We will continue to do the majority of the worrying on how to minimize these impacts, but we are asking that you help us to help you by planning ahead.