Businesses experiencing crippling prices and delays due to shipping disruption

The disruption caused by the Covid-19 pandemic to the shipping industry has left devastating effects on businesses that rely on importing goods from East Asia, with costs escalating at a staggering rate and delays on shipments.

One example is a company in the UK, Peppermill Interiors, which supplies furniture for people’s homes and the hospitality sector.

The company, who employ 40 people, use suppliers in the UK, but roughly half of its stock is imported from East Asia, mainly from China. It will typically bring in between 200 and 250 containers each year.

Of the rise in shipment costs, owner Scott Humphreys said:  "We're trying to do the best we can, but this is crippling us. Before the pandemic we were paying $2,500 to $2,800 to bring a 40-foot container from China. Now we're paying $16,000 - if we can get a booking."

The price rises are caused by a long period of disruption in the container shipping industry, initially due to the Covid outbreak. Demand dwindled in the early stages of the pandemic but then a period of frenzied activity followed, with people ordering large quantities of consumer goods whilst being forced to stay at home. This then led to congestion around deep sea ports and a shortage of containers for new consignment. 

The rise in shipping costs is taking a heavy toll on Mr Humphrey’s business. "We physically can't absorb the extra costs. We have to pass them on," he explains.

"A single armchair used to cost us £12 to bring in from China. It now costs us £100. So the price we sell the chair for has gone up by 25% - but that isn't extra profit for us.

"Some of the cheaper items, they've doubled in price. There's no point bringing them in any more," he said.

He makes it clear who he blames. "It's all going to the shipping lines. They're working together. It's like a cartel out there."

It wasn’t just the Covid outbreak troubling the waters for the shipping industry. The Suez Canal blockage closed one of the world's busiest shipping lanes for nearly a week. It created a traffic jam of hundreds of ships, which then played havoc to schedules and added more pressure to the already congested ports. 

Things don’t look set to get any easier, with a recent outbreak of Covid 19 in China's Guangdong province having a big impact on one of China's busiest ports, the Yantian International Container Terminal. This has created more hold-ups and experts have now warned that the knock-on effects could last for months. 

While businesses are struggling across the world, it would appear the biggest deep-sea carriers are not suffering a loss of earnings.

Industry analysts Sea Intelligence have highlighted the fact that 11 of the biggest deep-sea carriers made a combined operating profit of $16.2bn in the first three months of the year. That was significantly more than the $13.3bn they generated across the entire second half of last year.

Sea Intelligence describes these figures as "staggering", with all 11 carriers earning more in the first quarter of this year alone than they did in the same period of the previous ten years combined.

The shortage of capacity is a big factor in why prices have escalated, however, a number of importers told the BBC they believe a lack of competition between shipping lines is also having a significant impact.

Gavin van Marle is managing editor of the logistics industry newsletter, The Loadstar, said: "They're certainly making hay while the Sun shines. It's definitely opportunistic, but whether there's active collusion is another question".

Deliberate price fixing between shipping lines on European routes was banned by the EU in 2008. But that, he says, doesn't mean they can't match each other's prices informally.

Back in the UK, Peppermill Interior's Mr Humphreys has written to the prime minister, and several other government ministers, calling for action to combat what he calls "unethical business practices" by shipping lines.

He has had no response, so far.

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Source: BBC News.