Challenging Assumptions on Port Congestion

Earlier this week two, let's call them politically opposed British newspapers, ran two stories about the recent delays at the port of Felixstowe in the UK. One took the line that this was just another example of Brexit failing the UK while the other highlighted port delays around the world in an attempt to show that it’s not just a problem in the UK and hence not the fault of Brexit. Both viewpoints are equally moronic but for very different reasons. While there are elements of truth, buried deep within both the simple truth is that it is much more complicated than either argument portrays. In this article we will attempt to shed light on the reasons behind this global phenomenon.

The above images show the container ship congestion in the ports of Los Angeles and Long Beach (top) and in the English channel (bottom) where vessels queue for the ports of Felixstowe and Rotterdam. Taken without context any number of arguments can be crafted, e.g. there are only a few container ships queuing for the UK because the rest are being directed away, or that the UK is experiencing delays that are trivial in comparison to those occurring around the world. The reality as we shall see is that both ports are experiencing issues as part of a global problem and that these issues are being exacerbated by local factors, which in some cases may be doing more damage than others.

In order to understand the issues currently experienced on the shelves of shops worldwide, we must first understand the journeys that goods take from their origin (probably in the earth) to your hand. Take the iphone for example, the boffins in California have designed a state of the art product that has dominated the global market for decades, but what is actually involved in its construction? The memory and applications processor is made in S.Korea, the flash memory, touchscreen controller and audio controller are made in the USA, the accelerometers and gyroscope are made in Taiwan, the phone network components are made in Germany and the bluetooth and wifi components are made in Japan. These components are all loaded onto trucks, taken to a nearby port and shipped to Shenzhen in China where the iphones are assembled. These are then taken back to port, shipped to California for packaging and redistribution on a ship or a truck (or both) to a store near you. Of course, before this the raw materials that make up each component need to be mined, shipped to a processor and then shipped on to the factories making iphone parts. This includes aluminum from India, iron, copper and lithium from S.America and Australia, gold from the USA and cobalt from Africa. While this is a relatively complex supply chain, the reality is that most supply chains are complicated and few (if any) nations are able to claim to be fully self sufficient.

It should be apparent given the global nature of supply chains that the shipping industry is crucial to fully stocked shelves. However over the last 18 months a pandemic shaped curve ball has been thrown at the ill-prepared shipping industry. Every year old ships are sent off to sail the great blue ocean in the sky and a new crop of modern ships are rolled out of dry docks to pick up the new demands of the industry. However since 2016 the ratio between commissioned ships and total fleet capacity has been decreasing, while the number of decommissioned ships has not really changed year on year. (https://www.freightwaves.com/news/ship-orders-collapse-will-rate-boom-follow). Essentially this means that the total capacity of the container fleet is not increasing and if anything it has decreased. Due to market uncertainty following the devastating economic impacts of the western lockdowns the number of ships being ordered reached a new low in 2020, however there was no decline in the number of ships being decommissioned. Due to the long lead times on ship building, this points to less ships on the water between 2021-2023 (https://www.statista.com/statistics/913398/container-throughput-worldwide/).?

Throughout the pandemic, there was footage of empty shelves and crowds of incensed consumers fighting over everything from pasta to toilet roll, across the western world. Increased demand at a local level meant that suppliers made ever larger orders to their suppliers (and so on) in order to meet demand. A second effect of this is a massive increase in online ordering from people with money that was not being spent in bars and restaurants who are unable to shop at their local businesses. One look at the amazon share price and the growth in websites like etsy, tells you all you need to know.

So at a local level we have a massive increase in consumer demand and at a macro level we have a shipping industry operating at reduced capacity (https://www.statista.com/statistics/913398/container-throughput-worldwide/). As result of this, shipping costs have skyrocketed. The average global price to ship a 40ft container now stands at $10,000, a three fold increase on the pre pandemic price? (https://www.economist.com/finance-and-economics/a-perfect-storm-for-container-shipping/21804500). This is good news if you happen to own a few ships, but bad news for everyone else. The effect that we are now seeing is a stretched shipping industry trying to meet ever increasing demands. It is now becoming common for vessels to spend less time in port despite taking on more cargo, compromising safety. Container ship speeds are also increasing (in spite of environmental concerns) as captains push through the elements to meet ever shorter deadlines. There is in effect, less tolerance in the system for delays, whether they be due to mother nature or human factors.

Hopefully by now you are convinced that supply chains are vastly complicated with many interconnected ports, countries and factories, all held together by a fleet of container ships, lorries and railways. You will also appreciate that demand for shipping has increased but the shipping capacity has not risen to meet that demand. With that in mind let's circle back to the original premise of the article. Is Brexit responsible for the congestion in Felixstowe or is it just part of a global problem? Both are correct but both (probably knowingly) ignore the bigger picture. Within the context of supply chains and the supply and demand in the shipping industry, consider what will happen if ports on the west coast of the USA face operating issues due to wildfires, if the port of Durban has to close due to strikes, if Yantian has to shut down due to covid or if containers are stuck at port due to a lack of drivers. Will the effects of these local problems be localised or will they be global? Delays in Chinese ports may seem like a distant problem but down the line those delays will be passed on to ports in the USA, UK and in Europe. Now throw panic buying and HGV shortages into the mix and you have a supply chain pushed to the limit. It is in many ways the perfect storm. In the case of the UK, it would have faced issues regardless of what was happening around the world as a result of Brexit. However if it had voted to remain it would not have been spared the issues plaguing the worlds supply chains today. With this in mind, Chinese factories are currently operating at reduced capacity due to the sky-rocketing cost of energy. What effect do you this will have on the USA and Europe in the coming months? Inevitably this reduced output will have a knock on effect on supply chains and Europe and the USA can expect shortages in the coming months. (https://www.ft.com/content/263b9416-0238-4347-a0c8-65fc8fd41e47).?Furthermore, new shipping capacity will not be coming online until the second half of 2022 and covid has not vanished, so do not expect these issues to disappear for a while.

Covid was perhaps a once in a lifetime disruption to global supply chains but in truth it may be but herald of things to come. Someone living through WW1 may have thought that that was a once in a lifetime disruption to their way of life, only to live through Spanish flu, the great depression and WW2. The interconnected world that we live in also means that localised events and disruptions will not have localised effects. The climate emergency is a very clear example of a growing issue that will likely cause further disruption both domestically and internationally. This is where geospatial intelligence tools can come in to accurately map the whole chain and its associated risk,? leveraging multiple datasets, and provide real-time insight and predictive capabilities to take the guesswork out of supply chain security, risk and resilience.