COVID-19 continues to wreak havoc on supply chains, and it appears the situation continues to worsen before it is expected to get better. We have all become used to shipping delays and elevated pricing, however, the latest port closures and limitations in China have sent shipping prices through the roof.
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.
Ultimately everyone is trying to build up inventory to prevent future supply chain issues, however, by doing so they are essentially creating, or at least compounding, supply chain issues. The good news is that manufacturing in Canada is increasing and inventory levels have risen recently. The question is, with these new supply chain woes, how long can these inventories last, and who will pay for the added supply chain 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.