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When will the shipping crisis resolve?

The shipping catastrophe stemmed from COVID-19; when will it end?

It began in 2020 as lockdowns and outbreaks temporarily closed and reduced capacity at ports worldwide. Shipping delays essentially exposed the vulnerabilities of trade. Moreover, industry observers expected normalcy to take at least a year.

Is the projection credible?
When the pandemic hit, countries began experiencing shipping backlogs; countless vessels were left waiting for weeks to unload. In July 2021, manufacturers reportedly converted their production models from “just-in-time” (JIT) to “just-in-case” (JIC) to mitigate some losses. The JIT model is an inventory management strategy requiring predictable and accurate forecasting. JIC on the other hand is more common in locations with weak transportation and production capabilities. It would make perfect sense for retailers to order excess inventory, albeit more costly due to storage fees. However, it is suicidal for retailers dealing with perishables.

Chris Edwards, President of New Zealand’s Customs Brokers and Freight Forwarders Federation, named congestions as the root of the crisis. He said, “The crux of the crisis had been the unexpected peaks and troughs in shipping demand due to backlogs at ports caused by COVID-19 disruptions. Demand for shipping only increased about 5 per cent, whereas peak times like Christmas could be planned months in advance, now the peaks are coming out of the blue.” Edwards added New Zealand was one of the countries most impacted by the crisis as it is heavily dependent on shipping. Edwards was not optimistic about any recoveries unless an incriminating pattern appears to indicate the crisis has reached its peak. He expects normalcy to return only after at least a year.

Shamubeel Eaqub, an economist from Sense Partners, argued that while inflation increased 4.9 per cent over the past year, he noted shipping-related issues only contributed about 1 per cent. Eaqub stressed the cost of shipping is usually a very small part of the cost of goods. Though he echoed Edwards’s take on the possibility of recovery after a year, he had a different take on manufacturing. “I think shipping costs will come back relatively quickly, but I think production disruptions will not be able to catch up to global demand and most estimates said it will take 1- 2 years,” Eaqub explained.


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