The Domino Effect Of Container Shortage The unusual predicament is a result of the pandemic coupled with the current geo-political tensions
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Recently, farmers in Nagpur sold onions at a cost as low as INR 3 per kg. The dirt-cheap price is attributed to the abundant supply of the produce in the domestic market and the plight of the farmers is further aggravated by drop in exports due to global container shortage.
The global container shortage is not a recent phenomena. The unusual predicament is a result of the pandemic. So, when did it all start? This can be traced back to 2020 when the world was reeling under the spell of COVID-19.
China was the epicenter of coronavirus and as the pandemic crawled out from the Asian country, the world went into a lockdown, halting economic growth. Soon, factories closed down resulting in the blockage of containers at ports, which pushed carriers to reduce the number of vessels sent out to sea. The empty containers were not picked up and the import, export got severely hampered. The reduction in the number of shipping vessels operating as a result of the pandemic led to fewer empty containers being picked up.
This was especially significant for Asian traders, who couldn't retrieve empty containers from North America. As China started to recover from the pandemic it resumed exports earlier than the rest of the world.
Report said the remaining containers in Asia headed out to Europe and North America, but those containers did not come back quickly. Workforce disruptions and restrictions in North America affected not only ports, but cargo depots all across the country. Without adequate staffing, containers started to pile up and as borders tightened, customs became more complicated to clear, eventually leading to congestion.
Currently, the global supply chain has been worsened by the ongoing geo-political conflict due to the Russia-Ukraine war. Experts opine that this can lead to another wave of container shortage, as containers will pile up at certain Russian and Ukrainian ports.
This global supply-chain impact has led to transportation delays. Shipping operators are trying to add new containers to mitigate capacity crunch, but the boxes are stuck at ports.
The port congestion needs investments in inland logistics and infrastructural needs. The problem can't be solved by simply adding more capacity in regards to ships and containers, said a study.
Companies have been reeling under the shortage but have paved out ways to deal with it. "Post the COVID-19 pandemic, the world has witnessed unprecedented supply chain disruptions. Shortage of chips and rising logistics and freight costs have had the most far-reaching impact on the technology and manufacturing industries. Some reports peg the increase in freight costs to over 300 per cent. According to the Economic Survey 2021-22, these supply chain headwinds in the form of shipping container shortages and rising trade costs will continue for some time. As corporations and countries explore alternative supply chain and logistics models, these factors will definitely challenge existing cost structures and push the envelope for indigenization and operational efficiencies," said Ankit Agarwal, managing director of STL, in an earlier interview with Entrepreneur India.
FMCG heavy weight, Amul, has seen an opportunity in the situation. R.S. Sodhi, MD of Amul told us in an earlier interaction, "During this shipping container shortage and transportation delays, we figured out ways to be profitable. We started exporting more to our neighboring countries. In 2020-2021, we exported dairy products around INR 520 crore and it increased to INR 1,450 in the year 2021-22. No doubt shipping costs increased but due to low lead and transit time, many Asian countries preferred India for their imports and we saw a huge opportunity in it."
As companies try to find solutions to mitigate the crisis, the domino effect continues. According to Glenn Koepke, GM Network Collaboration, FourKites, the Russia-Ukraine war is expected to have a long-term impact on global container logistics.