Increased Freight Rates & Container Crisis

INCREASED FREIGHT RATES AND CONTAINER CRISIS

 

Over the past 19 months, LOFA has constantly been reporting on the operational issues faced by its members and the industry as a whole. We were hoping these issues would have lessened and we could have gained some respite however, it seems that these problems are now escalating even further.

 

LOFA can report that there is yet another increase in freight rates being levied at our industry, and the new FAK* rates from Asia to North Europe are now edging towards $20,000 per 40ft container, this represents a massive 1566% increase in the space of 19 months.

 

These increased rates will of course have a major impact on importers, retailers, and consumers. Retailers will not be able to sell stock if the retail prices have to be increased due to the jump in these shipping costs.  Importers will find themselves trapped, having to pay 16 times more for freight than last year and it would not be unlikely to expect some companies to flounder in 2022 if this situation is not resolved.

 

Considering many of our members have to bring in 50 plus containers in a season this is a huge amount of extra funding they are having to generate. 

 

Example

2021 - 50 containers @ $20,000 per 40ft Container           $1,000,000

2019 - 50 containers @ $1200 per 40ft Container               $     60,000

Extra funding                                                                        $   940,000

 

LOFA members have tried to absorb these costs where they can, to assist their customers, but this will no longer be possible with such a massive increase. 

The whole market is in bedlam and there are many defining factors causing this issue, price increases aside.

 

  • Finding empty containers is exceedingly difficult. 
  • Factories are producing products but are running out of storage space because there are no free containers to load the products onto.
  • There is a new outbreak of Covid which is affecting the southern China Ports where there were reported to be up to 40 vessels waiting to berth last week.  
  • The availability of containers at these southern Chinese ports continues to deteriorate as carriers omit calls due to a wave of Covid outbreaks in the Guangzhou province.  According to the latest data from Container xChange, the ports of Yantian, Shekou, and Nansha have been the worst hit by container shortages.
  • There are far fewer empty containers arriving back to southern China as container lines skip calls, and many shippers face long delays or higher prices for equipment if these affected ports can’t be avoided. 
  • At the moment there are 5 million containers currently in the wrong position in the world and 40% fewer vessels for June as a result of the Suez Canal issues. 
  • When products eventually arrive in the UK there is now an issue with moving goods that have docked and cleared from the quay as inland haulage rates have reached new and unexpected heights.  

 

Is it the shipping lines that have colluded together and seized this opportunity to increase prices whilst the demand is strong and are now reaping the benefits for no other reason than they can?  Distributors, retailers, and consumers are now all paying excessively for this short-term profit gain, in real terms has Brexit, Covid and the high demand helped them to get away with their greed, and are they in effect operating as a cartel? Is there too much control in the hands of the shipping lines? 

 

In light of these ongoing difficulties LOFA has lobbied the Department of International Trade, the Home Office, local government and has also reported this price-fixing by the larger freight firms to the Competition and Markets Authority, this report is now with the CMA legal team who are deliberating on a decision. LOFA is hoping this will lead to a full investigation. 

 

*FAK is an acronym used in the shipping industry that stands for Freight All Kinds. According to globalnegotiator.com, they are rates applicable to all types of goods and not restricted to any particular commodity.

Suez Canal - Container Deliveries Stalled


More than 180 ships remain blocked in the Suez Canal in both directions, unable to get through one of the busiest waterways in the world, LOFA has learned that the freeing of the ship may take longer than originally thought.

 

A huge backlog of vessels is building up amid warnings that the salvage team could need days or even weeks, to prise out the giant container ship that’s blocking the crucial waterway.

 

Work to re-float the Ever Given and allow passage for oceangoing carriers hauling almost $10 billion of oil and consumer goods continued without success on Thursday. Tugs and diggers have so far failed to budge the vessel, and some experts say the crisis could drag on for several days. The Suez Canal Authority has temporarily suspended traffic along the waterway.

 

Many LOFA members have products on the Ever Given or held in one of the container ships behind the vessel, which means yet another setback for the outdoor leisure industry which is already dealing with issues caused by port congestion, lack of empty containers, and rising shipping costs.

 

The incident began on Tuesday when the Ever Given, on its way to Rotterdam from China, faced strong winds which kicked up sands along the banks of the 120-mile canal. The waterway is less than 205 meters in some places and can be difficult to navigate when there’s poor visibility. As gusts that reached as high as 46 miles an hour swept up dust around it, the crew lost control of the ship and it careered sideways into a sandy embankment, blocking nearly the entirety of the channel 

 

At about a quarter-mile long (400 meters) and weighing in at 200,000 tons, the sheer size of the vessel is overwhelming efforts to dig it out. The vessel will most likely have to be lightened before it can be dug out on either end. The salvors may have to lighten the ship by removing things like the ballast water, which helps keep it steady while at sea. Fuel could also be unloaded.

 

Container ships usually take 5-6 weeks to travel from China to UK ports, some shipping companies are now starting to divert their ships around the southern tip of Africa, the Cape of Good Hope, which adds about 3,500 miles to the journey and up to 12 days.

 

This could not have come at a worst time for LOFA Members and retailers with the Easter and May day weekends fast approaching it will mean extra delays for products arriving in the UK. 

Empowering change for a brighter future





2020 to 2030 will be the most important 10 years for our planet. What we do in this time will determine the course of humanity. If every person, association, organisation, and Government take decisive action now, we can all contribute to a flourishing society, a healthy environment, and a prosperous economy. 

 

Sustainability is no longer a “nice to have”, it’s a business imperative and a critical global issue. Everyone wants to see action and people are becoming more engaged than ever in the process. It is our children and future generations that are going to suffer if we don’t all step up to the mark and start addressing these social and environmental concerns today.

 

Looking after the planet can realise many business benefits like better brand positioning, attracting great talent, cost savings, customer loyalty, and gaining a competitive advantage.  Future-proofing our businesses, in particular, is something that should be at the top of every to-do list, which can only have a positive impact on the world. 

 

LOFA has teamed up with Planet Mark, a company that cares about the planet and wants to help businesses action and power change.  Their certification recognises continuous improvement, encourages action, and helps build an empowered community of like-minded individuals to make a whole world of difference. 

 

LOFA first became aware of Planet Mark in 2020 at the GCA conference, where Sir Tim Smit KBE the founder of the Eden Project, gave a fantastic presentation on sustainability and what businesses could do to reduce their carbon footprints.


Some of our members have already started down this road (Alexander Rose, Lifestyle Garden @Scancom, Leisuregrow, Zest4leisure, Que Fresco, Kadai, and Ginique to name but a few) and are well on their way to reducing the effect their businesses are having on the planet. 

 

Planet Mark supports the Eden Project and also Cool Earth, a non-profit organisation that works alongside rainforest communities to halt deforestation by putting local people back in control of their forests.  Every business that joins Planet Mark protects an acre of rainforest for every year of membership, so far Planet Mark has protected hundreds of acres of rainforest in Peru, and LOFA’s involvement will protect hundreds more.

 

By measuring and reducing our carbon footprint with Planet Mark we can directly and measurable contribute to up to 9 Sustainable Development Goals and address 25 SDG targets




To help kick off this initiative, LOFA in conjunction with Planet Mark will be holding a Business Sustainability Essentials workshop. This workshop will outline how LOFA members can choose their organisation’s focus areas for carbon reduction and social value creation and take incremental steps forward to come up with plans to reduce carbon emissions.



BREXIT BORDER ISSUES ARE RESULTING IN MAJOR DISRUPTION FOR LOFA MEMBERS

The deal struck with the EU is proving to be not as frictionless as the industry had hoped. LOFA members are reporting of difficulties importing and exporting post Brexit, due to delays and complex paperwork requirements at the UK border.

 

Deliveries

Before Christmas deliveries were taking a maximum of 1 week to reach the UK, but hauliers have now increased average estimated lead times to a minimum of 3-4 weeks.  A number of the larger logistics companies are refusing to deliver to the UK unless they have full loads which can clear customs without touching bonded warehouses. This is because freight forwarded bonded warehouses are facing a backlog due to a build-up of trailers waiting to be unpacked. As a result orders can now be delayed for in excess of 2 weeks whilst they wait to be processed.

 

Significant business has been and will be lost because some Irish customers importing from Europe are using the ferry from Dunkirk to Rosslare, rather than using transport systems through the UK.

 

Borders

Borders are undermanned and there are just not enough staff to cope with the increased documentation checks. This coupled with the new systems that were triggered on the 1st January which importers, exporters and hauliers are saying are convoluted and over- complicated, are causing issues at point of entry because of incorrect paperwork.

This is further compounded by a software update delay by the HMRC which means the current system is not up to coping with the demands needed for the new controls.

 

Charges

Tariff charges have increased for both imports and exports and in some cases doubled if the country of origin is outside Europe, which means sales are affected at every stage of the journey. There is a new £50 charge levied for each custom declaration plus a further tariff charge for each line item on an import document. This means that for some, drop shipping direct from Europe will no longer be viable.

 

Drivers and hauliers are reluctant to travel to the UK in case they have to quarantine for 14 days, Hauliers are telling us that it is chaos out there with long delays and unprecedented disruption. One company said that it has turned out to be… ”worse than the worst-case scenario they had ever imagined.”


The new regulations that have been imposed as a result Brexit are clearly forming a barrier to trade. They are not only having dire implications for our members but also the supply chain and the wider import/ export industry. As an organisation we are actively lobbying government departments and local MPs and asking them to urgently address the issues adversely impacting not only LOFA members, but also a significant proportion of other major UK industries.  

 

It is becoming increasingly apparent that the Brexit deal was not a deal for continued and unrestricted trading. It is a deal that to date has put up logistical barriers and appears to be severing our commercial partnerships with Europe. 

Container Issues continue to escalate at UK ports

Container Issues continue to escalate at UK ports

LOFA reported two weeks ago of the congestion that is causing major problems at UK ports, this crisis is now escalating, and the situation is now being highlighted by the BBC who are reporting on the struggle and financial impact this it's having on UK businesses.


These issues at ports have led to shipping firms quadrupling their freight costs.  These delays, which mainly seem to be worse at Felixstowe, are being caused by a surge in import traffic.  


The owner of the port said that if the chaos continues, these increased shipping prices will have to be passed down the supply chain. It seems that containers are being left on the quayside because haulage companies are unable to book slots to enter the site. 


Retail outlets will suffer because they will be unable to sell what is en-route at the moment in time for Christmas which will mean there will be a knock-on effect for the outdoor leisure industry after the holidays when garden-related products start arriving ready for the S/S Season 2021. 


Hutchinson Ports UK who owns Felixstowe has said that Covid, the imbalance in UK Trade, and Brexit stockpiling have exacerbated the situation and they are working with their customers and stakeholders to try and find a solution for the current situation. 


Another problem that is facing the port is empty containers waiting to be shipped back to Asia, these are causing a backlog at ports across Europe and North America, and to add further fuel to the fire shipping companies have sharply increased freight prices in response to the congestion, some by as much as 300%.  


It is extremely worrying that big shipping lines are drastically reducing UK volumes because so much of the UK goods arrive through our ports.  Ports across the world are battling to manage these surging demands for imports but it seems that Felixstowe is struggling more than most.

Severe Disruption at UKs Three Main Container Ports


 

Congestion is causing severe disruptions at the UK's three main container ports. LOFA members are seeing shipping lines not being allowed to return empty containers to the ports because they have exceeded their agreed allocations. Consequently, ports are putting a block on them returning any further containers in an attempt to prevent congestion at the terminals.  In the past shipping, lines have used surrounding off quay container yards for overspill storage but this again is an issue because container yards do not operate the same hours as the ports.

 

Major congestion disruptions and misery at all three ports, Felixstowe, Southampton, and London are being further compounded by the added introduction of COVID 19 measures.

 

Right now, the situation is worsening, this crisis is expected to continue into next year, or until there is a let-up in the current volume levels, which is leading to carrier companies introducing port congestion surcharges.

 

This lack of space and container issues will result in price hikes coming in as early as next week.  This crisis has led to many carriers refusing bookings to the UK and even talks of UK ports being omitted on some vessel rotations. The container capacity issues in the market will inevitably lead to substantial increases in sea freight costs, and the lack of availability will also lead to delays in the delivery of containers to UK destinations. 

 

The situation will become worse before it gets better for logistic providers and UK importers.  It is hoped that the current backlog does not continue into Chinese New Year so that business can recover by the time we reach February 2021 and if not by the time we are all faced with the challenges that Brexit will bring.

 

This is troubling news for LOFA members and the industry as a whole, leisure products start to hit ports as early as December.  The UK appears to be in a particularly difficult position, the congestion and delays which appeared to impact Felixstowe initially have now spread to other ports, resulting in some vessels having to “cut and run’ before discharging containers.  The UK port issues have now led to one or two carriers unofficially communicating their refusal to take bookings to the UK from Asian locations during November. It will therefore follow that their vessels will not be calling at UK ports. 


Of course, the peak season, which has been heightened by six months of global trade being pushed into four this year, cannot be expected to continue indefinitely and is usually driven by Black Friday and Christmas sales. So, at some time, in the not too distant future, there must be some much-needed respite for UK ports and business, that said, with COVID-19 starting to peak once more, the current national lockdown and Brexit on the horizon, the next few months are still likely to be an extremely challenging time for the industry as a whole.





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