The headline in a recent edition of American Shipper says what I’ve been saying for months: “Shipping Chaos Gives Top Importers ‘Massive Competitive Edge.’”
In a blog I wrote in May, I pointed out how larger shippers are seeing their rates go up but not at the levels of smaller shippers and larger shippers have a much better chance of getting their cargo on ships. Given that, the larger shippers aren’t making much noise about the situation and don’t seem very interested in trying to find solutions. Smaller businesses, however, are being crushed with these charges and lack the support of the larger players in trying to effect change.
Why should they want to effect change? Some lines from the American Shipper article sum it up nicely:
“We’re seeing a price differential of $15,000 [per forty-foot equivalent unit or FEU] between the lowest short-term price in the [trans-Pacific] market and the top price,” said Erik Devetak, chief product and data officer of Xeneta, a Norwegian company that analyzes freight rates, during a press conference on Thursday.
“That implies a huge competitive advantage for established players, which has consequences across the economy and for everyday life, and also, from a point of view of lowering competition and increasing barriers to entry for future competitors.”
Patrik Berglund, CEO of Xeneta, added, “Everybody’s seeing price increases but... being really big is really a massive competitive edge in this market.”
Mainstream media is finally catching on to the issue, warning consumers of product shortages and rising prices – some of this already happening and has been for months. Many consumers likely think this is a short-term, one-time situation. While we all hope it’s a one-time situation, hope is not enough. It’s also not a short-term situation – not when you consider it’s been spiraling out of control for more than a year and anyone offering a timetable for possible relief is pushing that time further back. Most now think the soonest any real relief will happen is the middle of 2022. By then, many businesses will cease to exist.
The big shippers – and this doesn’t include many firms that sell millions or even several billions of dollars’ worth of product – likely are licking their chops to see that very thing happen. Normally, when an issue comes up the big players lead the way in forming coalitions to address it, encouraging smaller entities to join in the effort to show widespread support. Not only didn’t that happen this time out but many large entities buying through third parties refused to absorb any of the added fees (leaving that burden solely to their business partners). Another reason the biggest shippers aren’t speaking up very loudly – their volumes practically guarantee their product will get on ships because the shipping lines want to keep them as happy as possible.
I’ve heard many say the rising rates – even at the unprecedented levels we’re seeing – are somewhat justified because rates had been “so low” for many years. Increases of 400+% are not a market correction...
This is a scenario in which size certainly does matter. Maybe the largest shippers will finally show some real concern when their customers push back when their price points hit the breaking point.
Rates continue to rise to a point where in some cases they almost match the value of the merchandise in the container. Importers are still getting hit with charges such as demurrage for not picking up their product when it’s physically impossible to do so. The Federal Maritime Commission and the Biden Administration have taken some initial steps to address the problem but it’s time to put the pedal to the metal.