Excessive Ocean Freight Surcharges
Mike Wackett, writing for The Loadstar, a supply chain magazine, leads his article with this provocative headline: “‘This madness must stop’ – clients go bust as shipping lines pile on surcharges.” According to his report, Hapag-Lloyd, one of the largest transoceanic carriers, has announced that effective August 15, they will be adding a $5,000 surcharge on each 40-foot container traveling from China to the U.S. and Canada.
No one is immune from the increasing prices. The article tells us that:
The Loadstar has heard from shippers that carriers across a growing number of tradelanes are now ignoring contracts and forcing shippers to accept their sky-high FAKs and hefty surcharges.
And there is growing concern that all but the biggest businesses will be unable to absorb or pass on to their customers these massive freight cost increases.
Are Ocean Freight Carriers Doing Long-Term Damage to Themselves and China?
The toy industry has, throughout the 20th and now 21st centuries, been a global enterprise. Germany was the world’s manufacturing center for toys until World War I put an end to its dominance. Later toy manufacturing moved to Japan, then to Taiwan, Hong Kong and finally, in the 1970s, to China.
Since that time, the Chinese, U.S. and European toy industries have worked together with China functioning as the factory while the U.S. and Europe have supplied the marketplace. It is a robust yet delicate economic ecosystem that has worked and worked well for decades.
It takes a lot to disrupt such an entrenched system. The current chaos in shipping plus the subsequent dramatic rise in shipping costs may just be the kind of “black swan” event that could shake up how and where the toy industry does its manufacturing.
Ocean freight carriers are making manufacturing in Asia unprofitable for European and U.S. toy and consumer products companies. What’s worse is that they make doing business undoable for many mid-size and smaller entities through their exorbitant fees and surcharges.Where will they go? That is the big question. No country outside of Asia has the infrastructure or population to take on the challenge. Yet, necessity drives innovation.
If ocean freighters don’t pull back on what they are charging they will damage their future and that of China and Asia as the manufacturing centers for the world’s toys.
Container Ship Captains Are Stepping on the Gas
Container ships are moving at faster speeds as they cross the Pacific. That’s according to a Freightwaves article by Greg Miller, “Full steam ahead: Why container ships are racing across the Pacific.”
Mr. Miller writes:
There are almost no container ships in the world left for liners to charter. Secondhand purchase prices are through the roof. It takes two years or more to get a newly built ship. How can liners find more capacity?
There is a way without adding ships for liners to move more cargo… speed up.
It sounds like a good idea, except that it eats up a lot more fuel and increases the carbon footprint. And that’s not the only problem. As I pointed out in Disruption Report#8, “Super-sized container ships are slow. Once they run behind, they can’t speed up and catch up.”