Supply chain crisis set to extend until 2022

If you thought the shipping crisis was over, think again. As we head into 2022, Australians should brace themselves for longer delays, fewer products, and rising prices.

If you thought the shipping crisis was over, think again.

As we head into 2022, Australians should prepare for longer delays, fewer products and rising prices affecting everything from groceries and clothing to appliances, electronics and retailers. cars, according to experts.

“Ultimately, prices will continue to rise to levels never seen before,” said Jackson Meyer, general manager of freight forwarding company Versus Global.

All of this will come against a backdrop of growing consumer demand as the lockdowns and restrictions of Covid-19 loosen.

In 2021, the intricate and finely tuned global supply chains that move goods from factories and farms to store shelves around the world have been plunged into unprecedented chaos, amid a perfect storm of factors, including Covid-19 lockdowns, growing consumer demand, extreme weather events and labor shortages.

In recent weeks, a new crisis has arisen on Australian shores – a critical shortage of AdBlue diesel exhaust fluid, which the trucking industry says could cripple the transportation networks that get goods to consumers.

AdBlue’s key ingredient, urea, which is experiencing global supply disruptions due to a Chinese export ban, is also used in fertilizers.

Australian farmers have previously described soaring fertilizer costs as ‘a kick in the guts’.

Mr Meyer said the urea shortage was a major concern for Australian farmers and could prevent fruits and vegetables from ending up on supermarket shelves.

With no tractors to produce food and no trucks to deliver it, combined with soaring fertilizer prices, farmers around the world are affected.

At the same time, disruptions to global shipping show no signs of slowing down.

The cost of importing goods to Australia soared 450% around the same time last year, delays are growing and capacity is reduced as carriers increasingly divert ships to the route more lucrative transpacific serving the United States.

“To give you an overview, we just got informed today that the shipping lines have effectively suspended bookings – no new bookings will even be considered until mid-January,” Mr Meyer said in an interview on the 15th. December.

“It’s ridiculous. All importers are affected – food, furniture, electronics, that’s it.

Mr Meyer said Australian food and drink manufacturers would be particularly affected, as they often relied on ingredients, additives and seasonings sourced from abroad.

Other raw materials such as the resins used to make plastic bottles faced delays and shortages, as did finished products such as food packaging.

“It’s got to a point where it costs more to import the container than the value inside the container,” he said.

“We are seeing feuds between importers and their own customers trying to push through price increases in order to keep their business going. Ultimately, it will affect the consumer.

Mr Meyer said import delays were already on average two weeks, which is expected to drop to 21 days from February.

“It’s an incredible time,” he said. “Especially local businesses that sell to other local businesses on a schedule, when they can’t meet their schedule, they are penalized, orders canceled.”

According to the S&P Global Platts Container Index, average prices for standard 40-foot containers on major global routes have risen from around US $ 1,000 to over US $ 7,000 since last year.

Tony Srnec, director of operations at Sydney-based Summit Global Logistics, said customers were changing their business models as shipping costs meant it was no longer worth importing.

“My opinion is that this is going to continue and I think we are just going to learn to live with it and adapt to it,” he said.

Meanwhile, the ongoing disruption caused by isolation and quarantine requirements is expected to continue, as the rise in cases of the Omicron variant raises fears of a new wave of the coronavirus pandemic.

Meyer said major events on the calendar, including the Chinese New Year on February 1 and the Beijing Winter Olympics starting on February 4, threaten to add further pressure on already struggling supply chains. .

Port closures are expected in northern China – one of Australia’s busiest shipping routes – while ports in southern China extend service suspensions by at least six weeks during the holidays of the Lunar New Year due to strict quarantine measures for crews, he said.

“We have an office in Shanghai – the buildings next to us have been closed for 14 days,” Meyer said. “There is no visibility when and where things are going to be closed.”

Mr Srnec said traditionally shipping costs have tended to drop “quite dramatically” after the Chinese New Year, so “it will be interesting to see what happens” this year.

Australia’s competition watchdog last month singled out the powerful Maritime Union (MUA) for disruptive workplace actions it said were contributing to supply chain bottlenecks .

Even before the recent disruptions, the country’s container ports were “relatively inefficient” and “well below” international best practice, according to the Australian Competition and Consumer Commission report.

“We were told that some shipping companies were already withdrawing their services from Australia before Covid hit,” ACCC boss Rod Sims said. “Australia must take decisive action to remain an attractive destination for global shipping lines.”

The watchdog said industrial action and “restrictive work practices” encouraged by the union – such as demands for hiring quotas for “family and friends” – have caused further disruption in the business chain. supply and exacerbated delays.

“For example, a shipping company informed ACCC that delays at Port Botany in September 2020 cost them around $ 25,000 per day per vessel,” the report said.

The MUA, however, blamed “astronomical international shipping costs” for Australia’s tight supply chain, saying “entrenched behaviors of shipping companies cartels” were affecting consumers’ access to products. imported.

Mr Meyer said there was some truth to this, with major shipping lines recently reducing the proportion of their contracts in Australia to more favorable fixed rates, typically negotiated for large bulk companies on an annual basis. .

Whereas previously about 65 percent of contracts were at more favorable fixed rates, shipping companies had effectively reversed the allocation at market rates “to maximize profits”.

“Which ultimately means there will be less product coming in,” he said.

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