How Much Does It Cost To Ship A Container?
It's not a surprise to anyone any more that the cost of shipping a container internationally has skyrocketed in the past year. According to a report from CNBC earlier this year, in January 2020, a 40 foot container cost on average $1,562 to ship from Asia to the West Coast in the United States. In January 2021, the cost for shipping the same exact container increased to $4,054. Now we already are midway into 2021 and the cost of shipping a container has surged to $20K, making it unbearable for customers who need to get products shipped from overseas. The pandemic, trade wars, and global uncertainty have all added fuel to the fire of why shipping costs for delivering these trunks of steel have gone through the roof. Blame it on what you want but at the end of the day businesses here in the United States need to know their costs in order for them to turn a profit or at least break even.
How Did The Shipping Container Crisis Start?
According to Carl Bentzel from the Federal Maritime Commission it all started in 2020 when containerized imports were down 20 or 30 percent in February through March and then spiked in May through July by 20 or 30 percent. This complete reversal was due to increased consumer demand for products like PPE, home improvement supplies, and other retail goods. The healthcare sector was trying to put out a raging fire caused by COVID-19 and the general population was acclimating to a new type of lifestyle and that required products to make their homes more conducive for both at home working and learning.
Economic Impact of Hosting World Trade
The Houston Ship Channel is one of the narrowest and busiest water channels in the world. Every year tens of thousands of vessels pass through these waters making Texas an important piece of the global economy. The Houston Ship Channel needed to be deepened, straightened, and widened in order to play host to these behemoth sized ships. Naturally, all of this trade generated a business boom and jobs to Harris County. In 2018, Port Houston produced 1,350,695 jobs, $339.0 billion of economic value, and $5.7 billion in local income tax. In order for it to operate efficiently it is currently maintained by the U.S. Army Corps of Engineers. The fact that the Federal Government maintains the channel helps ease the financial burden on the local residents of Harris County. The Port of Houston does not just bring economic prosperity to Texas but rather to the whole entire United States and the government recognizes that by caring for the water channel.
Ships Waiting Around To Be Unloaded
The surge led to increased orders from businesses here in the United States and there is an influx of shipping containers that the local ports are simply not able to handle. To put things into perspective, the Port of Los Angeles was seeing zero ships waiting to be unloaded and now there are 41 ships sitting around waiting to be unloaded. The time it can take to unload a ship's cargo is anywhere from one to two weeks. Many news outlets have shown Port of Los Angeles images of container ships waiting in line to get into the port, let alone being actually unloaded. On top of that, just a few months ago one of the biggest container ships, the Ever Given got stuck in the Suez Canal and created a bottle neck there. That created more delays and cargo ships getting backed up. All this has led to one of the biggest global traffic jams the world has ever seen.
It's Simple, Just Hire More Workers At The Ports
Not so fast. There is currently a worker shortage here in the United States and employers are finding it very difficult to fill high ranking positions let alone working at a port and operating expensive machinery. This has impacted every sector from sales associates to HVAC installers. It's extremely hard to get someone to a job site where they can be equally paid while working from home. The culture of business has changed drastically and the service industry is having a real hard time adapting to it. The only solution is for shipping companies to make these jobs more attractive with better pay and more benefits. These costs are getting passed along to the receiver of the contents in the container which will be ultimately passed along to the consumer.
Why Is It Worth It For Shipping Companies To Send Empty Containers Back To China?
In pre-pandemic times, after a container was unloaded in the United States it would get sent into commission to pick up goods like soybeans, corn, and wheat that are not common in countries like Asia. This would benefit local farmers and more importantly the U.S. economy as GDP would increase. But the problem here is that the exports coming from China are of greater value and consist of high-tech products like broadcasting equipment ($208b), computers ($141b), office machine parts ($82.7b), and smartphones($54.8b). For example, high tech companies such as Apple and Google do not want to delay their shipments coming from overseas by waiting for the containers to be loaded by local farms. They are willing to pay the excess shipping fees to the shipping companies to assure getting their products from overseas. It's pretty obvious that the price point for products coming in from China are more lucrative from both manufacturer and consumer point of view and will be given higher priority over local agricultural products grown in the USA. The demand for such tech products has increased and manufacturers are looking desperately for containers to ship their inventory out of Asia.
The Problem: The United States Is Reliant On China For Everything
This has nothing to do with combating the ideas and government of the Chinese Communist Party (CCP). It's a problem that has only been amplified during the recent global pandemic. We are way too reliant on China for everything from meds to shipping containers and our local economies which have prospered until 2020 are now hurting. Businesses cannot keep up with consumer demand and local farmers are left with agriculture products that have to be sold at a loss. The United States Government had implemented tariffs to try and bring manufacturing back home but it didn't even scratch the surface of being so reliant on China. The problem is not going to be solved by the Democratic or Republican Parties, rather it will be ironed out by the people of the United States. Businesses who rely on Asian markets need to ration out part of their production to manufacturers located in the United States. Over the course of time (maybe a decade or two) manufacturing in the USA will become more competitive which will bring pricing down and make our local businesses independent, having inventory readily available upon request. At the same time, the Chinese will need to lower their pricing to compete with U.S. manufacturing plants eliminating expensive shipping costs from shipping containers overseas. Who is to gain in such a scenario? the good old folks of the USA.
Has The Increased Cost of Shipping Containers Impacted Local Logistics Markets?
The demand for getting shipping containers to final destination points has helped boost domestic intermodal shipping companies. Truck chassis are waiting at the water ports and rail yards for the containers to be hauled all across the United States. It’s good to hear this but the ones who are suffering most are the local businesses who are waiting on products from overseas. The cost for shipping containers is pretty much unbearable and raising prices to the consumer might scare them away from buying. It’s a very tricky situation for business owners at this point in time and only time will tell how they can absorb the expense.
Assuming that local business could eat the cost, it’s vital to have a reliable logistics partner to deliver it to the final destination on-time and on-budget. FedEx and UPS have both raised domestic shipping rates in order to handle the demand for local deliveries due to the current pandemic. It seems like shipping rates are up everywhere to compensate for local and global issues related to the pandemic. No one’s sure where this is going to end but it’s time to take a real hard look at bringing manufacturing back home to the United States of America.
The current issue of surging container shipping costs is not a result of the COVID-19 pandemic. What happened is that the pandemic just exacerbated an ongoing issue of being reliant on a country that is 6,824 miles away from Times Square. To put things into perspective, it's like an alcoholic breaking free from an addiction that will take some time to resolve. When an alcoholic is admitted into a rehab center, they will slowly wean them off alcohol. The same would be true for the manufacturing industry. They have been intoxicated with cheap labor cost and material from China and need to go through a decade of detoxing. There is going to be growing pains in bringing manufacturing back home but it’s the sensible thing to do at this point in time. No one is asking anyone to go cold turkey in China but it's time to begin diversifying your manufacturing portfolio. Having products nearby was huge for local businesses during the pandemic and kept prices for customers down. Let’s bring manufacturing home again and let the USA prosper.