On the BBC news recently, there was a story about a couple who had their garden furniture stolen. The thief was hoping to take advantage of the surge in demand for home-based products and the difficulties currently encountered by the global supply chain. At HEX Fireworks we have had notifications from suppliers telling us that there will be price increases for our firework deliveries this year of between 20% and 25%. An increase has been anticipated for many months by the industry, but to what extent was, until now, uncertain. We know that the other suppliers are keeping a close eye on the shipping rates and timings too. If they haven’t organised shipping by now, they are in for a shock.
So how have we reached the point of a shipping container supply crisis? Various factors, including the COVID-19 pandemic, China as a global manufacturing powerhouse, Brexit and the ‘Ever Given’ container ship getting stuck in the Suez Canal, have all combined to produce the conditions necessary for a perfect logistics storm which impacts on a global scale.
©️Andrew Sassoli-Walker
TEU (Twenty-foot Equivalent Unit) is the unit used to measure container space. In 2020 global TEU throughput reached 775 million, down from 805 million in 2019¹. There are over 5,000 container ships, carrying over 23 million TEU worldwide as of December 2019¹. Normally there would be capacity to operate worldwide logistics smoothly, ensuring uninterrupted supply chains, however, the dominance of Chinese manufacturing, combined with the outbreak of COVID-19, Brexit and the ‘Ever Given’ incident, have led to major disruption. As the pandemic started to ease in China, their factories were able to restart manufacturing. Demand for medical equipment and PPE surged across the world to deal with the global emergency, and the rest of the world began to lockdown as the pandemic took hold. One of the consequences of lockdown was a worldwide surge in consumer demand for home items. Remember having to set up a home office, doing more home baking or buying toys to entertain the children who could not go to school? Many of these products come from China and are shipped in containers. In the U.K., although retail sales overall fell by 1.9%, some sectors saw huge growth. According to the Office for National Statistics the category which includes electrical retailers, jewellery, bookshops and toyshops saw growth of 73.4%7.
A commonly quoted average for container shipping is 60% of global seaborne freight movement¹. If you consider the near total stoppage of road freight across borders and heavily reduced air freight, consequently the amount of freight needing to be moved by sea goes up. Unfortunately, ship availability has been reduced due to COVID related staff shortages. There have also been delays turning ships around at ports. I have seen reports of significant delays in America, for example² where is a reduction in available labour due to the pandemic, combined with the increase in imports. However, the issue is not just getting containers off the ships. There have also been issues getting trucks to transfer the containers to their final destinations and the availability of equipment to move the containers around the ports. Only the other day I saw an article from the National Fireworks Association (USA), reporting that firework laden containers had been moved from the Port of New Jersey and Los Angeles by rail, due to problems with freight movement at New Jersey. Four of these containers had been waiting at NJ for over nine weeks. With such high demand for imports shipping lines are taking advantage and increasing rates to the popular destinations, as freight handlers struggle to book ship space. Hazardous goods like fireworks are, in the best of times, problematic to arrange shipping. There are restrictions on the ships as to how many hazardous containers they can take and there are also restrictions on where the hazardous containers can be loaded on the ship. They must be positioned above deck and offloaded immediately after docking. Many ports will not allow 1.3G containers to touch the dockside. The hauliers are required to be in position when their container comes off the ship, ready for the container to be lowered onto the chassis. The load then goes to the client’s warehouse. Now is not the time to talk about the classification and authorisation of fireworks as this is also a consideration, however I will save that for another time! Suffice to say there is a great deal of work and cost associated with importing fireworks legally and getting them hauled to our warehouses. Our display company, Fully Fused Fireworks, www.fullyfusedfireworks.co.uk imports containers of professional fireworks that are used in our own displays and are also sold to other display companies.
So, now we have containers arriving around the world transporting goods but why aren’t they heading back to China when empty? Most countries have an export deficit with China. For example, Los Angeles was importing 3.5 containers to every one going back out in October 2020. This is repeated around the world to varying degrees. There are approximately 900,000 TEU running from China to America per month so you can see this is a huge problem. In addition, shipping lines get a much better rate moving containers from ‘in demand’ ports such as Shanghai, the world’s busiest port. This has meant that in some instances ships are not waiting for cargo or empty containers. Currently ships are leaving with between 5-8% fewer containers on the return leg of a journey6. In some instances, where ports are experiencing long delays in container movement, ships are bypassing them. A large container ship can cost over $10,000 per day to run. Delays upwards of 16 days at congested ports can be very expensive. An article from 10 June 2021 states that Container xChange reports the southern Chinese ports have suffered significant reductions in the number of empty containers being imported. The worst is Shekou which is down 30%, with Yantian, Nansha and Shekou reporting a Container Availability Index of 0.476. (The Container Availability Index (CAx) maintained by Container xChange monitors container availability. The ideal is an index value of 0.5 - equal supply and demand. If the value gets lower there are more containers leaving than arriving and conversely if the value is over 0.5 then more containers are arriving than leaving.) An article from 3rd June 2021 reports that the eastern side of Yantian is operating at 30% capacity and the western side is closed completely due to a recent increase in COVID-19 cases. The authorities are working hard to disinfect facilities and test the local population, hoping to dramatically improve the situation by the end of June. In addition, there are potentially 50 to 60 ships anchored waiting to come in8. The infrastructure bringing containers to and from the ports is equally hit as COVID-19 restrictions and rules are enforced9.
Post Brexit process changes and ‘bedding in’ has impacted southern ports in the U.K. Delays in processing import documentation and getting used to the new system of operating have seen an already difficult situation worsen. In March 2020, the CAx index was averaging 0.95 compared to 0.79 in 2020. In contrast Rotterdam, considered a European gateway port, has increased from 0.4 in 2020 to 0.51 in 2021.³
The resourceful Chinese have made significant efforts to rebalance the supply of containers to get trade moving again and reduce the shipping rates. From a position of reduced output in 2019 and a slow start to 2020, since September 2020, according to an announcement by The China Container Industry Association, China has been producing 300,000 TEU per month. Imagine that 150,000 forty foot containers per month! 5 Production from the three main suppliers is now up sharply with estimates at 6-8% growth in capacity this year.6 But even this solution has its own problems. The cost of steel nearly doubled from roughly £370/tonne in May 2020, to a high of £650/tonne in May 20214. Couple that with a shortage of qualified welders, then yet again there is price inflation. Welds must be made properly because the containers are produced to precise size specifications and build tolerances. Poor workmanship may potentially lead to the container collapsing as it is craned on to the ship or in transit. Even used containers have doubled in price over the last year6.
Firework suppliers in the U.K. have not avoided this global supply chain phenomenon. As a retailer we placed orders with our suppliers back in March. We do this because the production time is limited and very tightly scheduled. Provisional orders will have been placed by the suppliers in January. The main firework market is America for the 4th July celebrations and all production and shipping is geared towards this. The U.K. market, although respectable, is tiny in comparison so American orders will always take precedence. Production in China is not continuous either. Wet months in the early part of the year, as experienced this year, can severely hamper production. A lot of the paper tubes are dried outside. It is a real sight to see; thousands of tubes laid out in rows to dry. On the flip side the temperature can get to 35 degrees plus in high summer which is normally July to the end of August. The Chinese Government imposes a mandatory shut-down during this time to reduce the chances of an accident. Communist Party anniversaries, important National dates and conferences can lead to halts in productions too. Hazardous industries are stopped during such events because they do not want an incident to occur during this time. Did I mention Chinese New Year at the end of January to early February? At that time everyone goes home for the celebration, again leading to factory shutdowns for about a month. Having been a Production Manager when Kimbolton Fireworks used to make fireworks, I have to say I have huge respect for my counterparts in China. Not only is their technical knowledge impressive, but also their time management in the factory.
Over the last year we, as a company, have monitored costs and been engaged in industry association discussions. We have seen 40ft container costs increase from $8-9,000 in 2019 to quotes of more than $25,000 in the last few months. As you can imagine suppliers have been holding off waiting to see what will happen to costs, playing cat and mouse before they commit and get the container booked. But as I have explained, even that is not a simple process anymore. If you get a slot, you take it. Many suppliers around the world are having to swap out products to get the containers filled. Suppliers will usually add 10% to 15% extra to their pre-order production runs to have some spare stock to sell. I doubt very much if this will happen this year. The extra cost involved may well put them off and we have heard that suppliers are only bringing in the pre-ordered stock. Manufacturers can exert some pressure on customers to get the products out of the warehouse. Products that are hard to make are therefore time-consuming. Selection boxes are a prime example of this. Producing 20 to 30 items and then organising them into the selections and packing involves a lot of work for the reward. Thankfully, we at HEX Fireworks have sufficient stock of selection boxes for this season.
We won’t be increasing our prices until we must, but as each of our supplier deliveries arrives, we will be updating the website to reflect the cost structure at the time.
One final thought to leave you with. We asked a couple of our logistics colleagues who work at a major U.K. container handling port and who have intimate knowledge of the situation to review this blog prior to publication, one has told us that they have been given a stark warning…
‘Expect £50,000 per TEU in July. There is a distinct possibility that Far Eastern production of U.K. bound goods will stop for a period because the cost of shipping is going to be too high to make it viable.’
Chris Adlam – General Manager
HEX Fireworks Ltd.
Sources:
¹ https://www.statista.com/statistics/267603/capacity-of-container-ships-in-the-global-seaborne-trade/
² https://www.hellenicshippingnews.com/is-worldwide-container-shortage-crisis-for-long/
4 https://tradingeconomics.com/commodity/steel
5 https://www.reuters.com/article/us-global-shipping-container-idUSKBN28K0UA
6 https://www.freightwaves.com/news/no-relief-global-container-shortage-likely-to-last-until-2022
9 https://theloadstar.com/latest-china-covid-restrictions-wreaking-havoc-on-shipping-schedules/