There’s not a week that goes by where I don’t hear about some shortage or another. Some unexpected price rise. Frustrations at being unable to get goods.
Covid-19 not only hit the world’s supply chains. It disrupted shipping.
Maritime transport handles over 80% of global merchandise trade by volume — and more than 70% by value. When entire countries went into lockdown, containers got stuck in place. Instead of returning to Asia to fill and sail again, they remained in limbo.
Meanwhile, as restrictions lifted, demand surged. There simply weren’t enough containers or ships to fill the demand.
The pandemic has exposed structural weaknesses in the global shipping network
It has caused many to reconsider their reliance on offshore production. Over the past year, the price of dry-freight shipping containers has doubled.
I came across a woman who imports fashion accessories from China. Her typical product sells for around $25. About $2 of this was made up of freight cost.
She is now faced with paying $6.50 to airfreight the product in. And with fewer passenger flights from China, this is also restricted to cargo availability. Her only option is to increase prices or face a near 20% drop in profit margin.
Countless businesses are facing this conundrum. And it doesn’t appear there will be relief anytime soon. This is causing significant economic impact and contributing to price rises (and inflation) we see across the economy.
Should we fail to get this under control, it poses the sort of input threat we saw back in the 1970s when I was growing up. The oil price shock caused inflation, which led to stagflation. Oil was a significant input to transport and industry in developed economies — even more so back then.
In the globalised world of today, freight — previously a negligible cost across greater volumes — has now blipped on to the radar as a significant and hazardous input cost.
As investors, our raison d’être is to find opportunity.
Solving problems is one of the best opportunities out there.
These high shipping costs and desperate shortage of containers mean shipping businesses have the opportunity to try and provide more volume. And increase their margins…
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