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Shipping Crisis and Inflation

Shipping Crisis and Inflation

There is no doubt that China has become “the world’s Factory” for more than two decades. Canadian construction industries benefit from their low cost and high-quality products such as hand tools, power tools, nails, electrical wires, lighting fixtures, plumbing PVC pipes, tiles, door locks, cabinet hinge, paint buckets…etc. One can easily find such products tagged with “made in China” labels in any local hardware store or lumber yard.  However, the cost of shipping from China to Canada is skyrocketing. More than 18 months into the pandemic, the disruption to the global supply chain is getting worse. The ocean freight cost from Shenzhen or Guangzhou China to Vancouver Canada has been rising to unprecedented heights since June 2021.

Container ocean freight cost history

  • 40’ Container ocean freight cost on DEC 2019   – US $   1,900
  • 40’ Container ocean freight cost on SPT 2020   – US $   4,500
  • 40’ Container ocean freight cost on JUN 2021   – US $   8,500
  • 40’ Container ocean freight cost on AUG 2021   – US $ 16,000
Shipping Crisis Consequence

On May 2020, China did not have a single new pandemic domestic case within its borders. China resumed its exports capacity and filled containers to North America. However, once these containers arrived to their destinations, COVID testing procedures and social distancing regulations caused the container unloading process to slow down, resulting in a long line up for container unloading. Container ships and the sailor crews jammed the port. Many unloaded containers backlogged on North American ports, but ports in China had a severe shortage of containers.

Since WHO announced the pandemic in 2020, there has been a shortage of shipping crew workers due to the new COVID rules, testing, vaccination regulations and work bubbles. Unfortunately, the “Delta” corona variant added an extra difficulty. The high risk of infections led to shipping companies forcing their sailor crews to work overtime, staying to work on both away and return trips instead of switching off with another crew. These problems in regards to manpower are impacting ship cargo rates as well.

The closure in June 2021 of Yantian, a port at Guangzhou, and the closure in Aug 2021 at Ningbo, a port at Shenzhen China, occurred due to coronavirus outbreaks being detected among dock workers. The terminal shutdown bottlenecks the export chain of China. It also holds up the peak season of deliveries into North America and Europe which typically occurs from September through November. From an accumulation of multiple reasons, the ocean freight company prices and the container prices continues to rise again and again.

Inflation

The combination of all of these challenges makes the global shipping industry crisis worse than ever. The soaring ocean freight rates are a direct consequence of this crisis. “Many small and midsize companies are faced with the fact that ocean freight even exceeds the profitability of the products they want to ship by sea.” Shipping wholesaler only option not to ship goods for the time being to watch the development of the post epidemic period, or to pass on the shipping cost to consumers.

Reported by Statistics Canada: The annual inflation rate in Canada quickened to 3.7% in July of 2021 from 3.1% in June and compared to market forecasts of 3.4%, with base effects from last year still weighing. It was the highest inflation rate since May of 2011, as prices rose at a faster pace in six of the eight major components in July. Canada July Inflation Rate was at an Over 10-Year High.

BC Residential builders were just recovering from the crisis of skyrocketing BC lumber costs. Yet, the second wave of material inflation has attacked fast and hard. The signed lump sum construction contract for residential housel, which are still waiting for the building permit, may breach by uncertainty inflation or cost addendum. Per-selling for condominium, town house or multiplex house may create potential risk for small residential builder. Homebuilders and home owners should allow larger contingency than the inflation on new house projects that commence at the end of 2021.