Businesses that are dependent on the shipping industry‒which is pretty much everyone‒find themselves in quite a predicament these days. Considering how much of their sales and operations revolve around shipping, the troubles currently affecting the industry have a marked effect on their collective bottom lines.
The problem is that so many shipping services aren’t performing the roles expected of them. Simply put, a lot of shipping companies just aren’t shipping.
The difficulties are such that commercial marine insurance has become vital for most shipping firms. Insurance has always been a requirement in the shipping business, of course. But given these new challenges, many companies need the comprehensive coverage these policies provide to stay afloat in an increasingly turbulent industry.
High costs and delays: The twin plagues of the shipping industry
The two main problems affecting businesses right now are higher rates and slow deliveries. Many companies are now quoting four times the prices they were charging back in 2019. Shipping often takes twice as long, with shipments arriving a full two weeks behind schedule or longer.
The situation would be frustrating at any other time. But it is especially alarming this close to the holiday season when merchandise should already be in the stores. And with the severe congestion affecting many of the world’s major ports, things are bound to get even worse.
Although it might seem that sending cargo by air is a feasible alternative, it is not without its own issues. Many companies temporarily considered shifting over to air freight, but it quickly proved too costly to be a sustainable option.
Where the trouble began
The problems currently plaguing the shipping industry actually began before the pandemic struck. The rise of cut-rate supply chains from Asia drove many shipping firms to consolidate their services, resulting in an ultra-efficient system that quickly became too unwieldy to handle.
The steep rise in global customer demand didn’t help matters any. Along with the unexpected spike came rapidly dwindling shipping space. And with the arrival of COVID-19 bringing factory shutdowns, freight limitations, and labor issues, the conditions were ripe for the disaster that we now see affecting the shipping industry.
The situation on the ground
In Los Angeles, over 60 vessels have been waiting to unload their cargo for weeks. Some of the thousands of containers on board are overdue for delivery by as many as three weeks. Some of the world’s biggest manufacturing and retail firms‒Nike and Costco included‒are the most heavily affected.
Up until 2019, it usually took Nike 40 days to ship its products from Asia to North America. Now, they are lucky if their cargo gets to the intended destination in 80 days.
Costco, for its part, has attempted to speed up delivery by chartering its own vessels. But this strategy has resulted in a 600% increase in the company’s shipping costs.
Much of the problem stems from the fact that only six firms own 75% of all available space for cargo vessels. And with all of them overbooked for the next several months, there is simply no way that the consumer demand can be accommodated. As Tom Wrobleski of Korn Ferry says: “There’s just not enough containers available.”
What can be done to ease the situation?
Several solutions have been put forth to reduce shipping delays and clear up backlogs. One of the most promising is the cooperation between different‒even competing‒firms that have common supply chains. In Europe, for example, companies with manufacturing facilities in the same city routinely share container space.
These types of alliances were previously unheard of before the pandemic. But changing times call for innovative and unusual measures. For companies that have previously been in fierce competition with each other, forging these types of partnerships is an effective and necessary alternative.
Others feel that nothing short of a complete overhaul will ease the shipping industry’s woes. But instead of moving manufacturers closer to their destination markets, Wrobleski proposes setting up manufacturers, producers, and suppliers in several different regions, each able to deal with major disruptions.
As important as these backup chains might be, setting up manufacturing facilities and warehouses with the capability to handle the demand requires a good deal of creative strategy. There is also an increased need to enhance customer relations and adopt a more honest and open approach that doesn’t leave customers feeling neglected.
About Merrimac Marine Insurance
At Merrimac Marine, we are dedicated to providing insurance for the marine industry to protect your clients’ business and assets. For more information about our products and programs, contact our specialists today at (800) 681-1998.