Isidoro Massri, general director of JAC Motors in Mexico, has seen how the invoices for logistics services have more and more zeros. Bringing the kits for the vehicles it assembles in Mexico and the spare parts from China is now between three and four times more expensive than in October 2020.
Massri is one of many importers from Mexico facing high freight costs to bring products from Asia, amid a global shipping crisis that he expects could last three to four more months. Between January and May, Giant Motors, which is the Mexican company that imports, assembles and markets JAC vehicles in Mexico, has imported kits to assemble just under 1,000 units.
The shortage of empty containers in Asia and bottlenecks at ports are behind the problems. The backlogs were expected to be cleared over the Chinese New Year holiday in February, but instead a new coronavirus outbreak in China and the traffic jam in the Suez Canal have prolonged the supply chain mismatch that began when the global economy It came to a standstill in the spring of 2020 and the world locked itself up to try to contain a pandemic.
But as global production of non-essential items came to a halt, shipping capacity was reduced. Demand recovered faster than expected, as contagion containment measures eased, even depleting accumulated stocks. For the last quarter of the year, stores began to stock up for the Christmas period, which tends to cause a peak season in normal years.
The usual Christmas rush was faced with insufficient container volumes and ports had difficulty getting containers in and out.
“The balance that existed in terms of ships and containers, which before the pandemic was perfect, because they came and went in similar quantities, allowed the price per container to be very stable. But having this phenomenon where, suddenly, the ships stay on one side and then all go to the other when everything starts to reactivate, it affected delivery times and costs ”, says Massri.
As of June 10, 2021, the global spot container freight rate index peaked at $ 6.727 per unit, on all major routes. And according to an analysis by Drip Capital, the global shortage of containers used to transport raw materials and finished products will skyrocket ocean freight costs by up to 300% in June, compared to December 2019.
The world’s largest container manufacturers are struggling to meet the increasing demand for metal boxes that carry around 80% of products in the global economy. They have been increasing production but cannot alleviate the shortage that has underpinned high freight rates for six months. There is a total container capacity of over 34 million worldwide, but all of these have been piling up in the wrong place for months.
The problem resembles those in the auto industry, where automakers cut orders for computer chips in early 2020 expecting a drop in sales, only to see demand for vehicles rebound quickly.
To absorb the high freight costs charged by shipping companies, Giant Motors has had to negotiate with its Chinese partner and local vehicle dealers to move the units.
“We have to consider all the options. We have even considered bringing spare parts in a refrigerated container ”, explains Massri. “We cannot leave our dealers one day without vehicles, without being able to sell units”.
The high freight costs charged by shipping companies could lead to higher prices for consumers, although not to the same extent that shipments have risen. “It is impossible to translate this completely into the price of the product. It would be unfeasible, it would be getting out of the market. Some brands have made decisions to increase prices radically, but we have worked with the entire value chain so that the product is the least affected ”, says Massri.
The shortage of containers and congestion in ports may extend into the second half of 2021, which will affect the finances of importers. “We see 2021 as a year of commercial recovery, but not the year of profitability,” added the manager.
