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Increased Shipping Costs & Delays Are Compounding Supply Chain Issues

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The Global Container Index, which measures average shipping costs, has averaged $10,000 USD in August.  This is approximately four times the average experienced in both the summer of 2020, as many companies began their restocking efforts, as well as pre-pandemic in the summer of 2019.

Furthermore, the cost to ship to North America from China and East Asia is even higher:

  • China/East Asia to North America West Coast is $17,507 USD (return $934 USD)
  • China/East Asia to North America East Coast is $19,098 USD (return $946 USD)

These exceptionally high prices are partially due to several reasons, including:

  • The previously mentioned port closures and limitations due to COVID outbreaks in China and elsewhere.
  • Issues with weather and climate, such as typhoons and lower ship capacity due to low water levels earlier this year along seaways and rivers, such as the St. Lawrence.
  • Increased demand for goods from consumers, particularly in the U.S. due to stimulus cheques.
  • Increased demand for goods as companies look to restock.

Inventories and Manufacturing Costs

Recent Flexport data from earlier in the summer shows that the average timeline to get goods from a cargo-ready facility in China to a warehouse in North America has increased from less than 35 days pre-COVID to over 73 days, and this has certainly increased since then.  A large part of the delay is a shortage of shipping containers, trucks, drivers, trains, and ships.  These shortages are compounded by a glut of items that need to be shipped.

These supply chain issues will have the following impact on the economy and commercial real estate:

  • Increased demand for warehouse space in ports as shipments await ships, trucks, and trains.
  • Higher prices for the end-users, the consumer, as manufacturers, wholesalers, and retailers are forced to add these additional costs in the final product selling price.
  • Potential reduced economic activity due to:
    • Potential slowdowns in manufacturing as companies await supplies.
    • Potential reduced retail sales as retailers cannot sell product they do not have.

Potential reduced retail sales as consumers deal with higher prices.