Global shipping is in chaos. After somewhat recovering from a COVID-19 recession, the industry is now battling a confluence of disruptive factors that have led to an international transportation crisis. From manufacturing plant shutdowns in North America to goods piling up on Chinese factory floors, an extremely tight logistics capacity is disrupting international trade on a scale not seen in modern history.
The international shipping capacity crunch has sent global supply chains into disarray, posing a challenge to post-COVID economic recovery. Tight capacity is causing manufacturing disruptions, transportation delays, and higher shipping costs, adversely impacting the supply chains and profit margins of many businesses. Let’s review tight capacity, what it is, and how our team at Trans Global Auto Logistics (TGAL) can be your partner in navigating the issues involved.
What is Tight Logistics Capacity?
Before delving into tight capacity, let’s first try to understand what capacity means in the logistics industry. Capacity in the logistics industry is the maximum amount of cargo that can be carried by transport modes like trucks, trains, and ships. In simpler terms, capacity is the amount of shipping space available for transporting goods to their destination.
When there is more capacity supply than demand, we experience overcapacity. But when there is more demand for capacity than available supply, we experience tight capacity. Many factors, some of which stem from the pandemic, have led to the current tight logistics capaaity around the world. Below, TGAL will explain how insufficient shipping container capacity, congested ports, and labor shortages are causing the global transportation crisis we’re facing today.
Why is There Tight Capacity?
Some factors that contributed to the current disruption in transportation, like labor shortages, existed before COVID-19. But a cascade of events that followed the global pandemic have created an international logistics crisis, squeezing all parties involved in the global supply chain. Some factors that have caused the current tight logistics capacity include:
Increase in Demand
As countries locked down and imposed stay-at-home orders, online shopping became most people’s favorite pastime. Lower fuel costs, a spike in eCommerce shopping, and an increased need for more personal protective and medical equipment led to more demand for shipping container capacity to transport goods around the world. Increased demand for logistics capacity led to decreased supply of available freight space, leading to the global transportation crisis we are experiencing today.
COVID safety precautions have decreased the availability of dockworkers in many of the busiest ports around the world. A smaller workforce at The Port of Los Angeles ⎼ the busiest port in the United States and the main point of entry for goods from Asia ⎼ has led to slower operations and delays in handling cargo.
Ships are stuck for days offshore in floating traffic jams and empty containers are piling up at the port. There are currently more than 285,000 empty shipping containers lying idle at the Los Angeles port. Slower loading/unloading and countless empty containers sitting idle at busy ports around the world are major contributing factors to the global logistics capacity crunch.
Chinese Trade Surplus
China was the first country to get hit and then recover from the Coronavirus. As a result, its economy bounced back quicker than other countries. This uneven economic recovery led to significantly more Chinese exports heading to the US and Europe than the other way round. China is aggressively demanding empty containers to be sent back from export destinations, resulting in tighter shipping container capacity for American and European exporters.
Many countries were struggling with truck driver shortages long before the pandemic. But the pandemic quarantined some drivers and caused many others to lose their jobs, resulting in a severe shortage of truckers in many countries around the world.
Trucks are needed to haul shipping containers from ports to the rest of the country. A lack of truck drivers is tightening logistics capacity and delaying the delivery of goods to their final destination, disrupting entire supply chains across many industries.
Impact of Tight Capacity on Businesses and Consumers
Capacity constraints in the logistics industry are creating bottlenecks in international transportation, particularly with the recent issues at the Suez Canal. From manufacturers to businesses and consumers, every entity in the supply chain is feeling the pain of a global capacity crunch. Delayed or canceled deliveries of raw materials are leading to factory shutdowns in many countries around the world. Honda halted all its American and Canadian manufacturing operations as port logjams hampered parts procurement.
Along with transportation delays, constraints in logistics capacity are leading to skyrocketing shipping costs. Businesses wait for weeks and are willing to pay premium rates to get sufficient shipping container capacity for transporting their cargo. The shipping crisis has caused a three-to-six-fold increase in international transportation costs, hurting businesses’ profit margins and consumers’ pockets. McKinsey estimates international shipping costs to remain high for the next two years, threatening the viability of small businesses that rely on importing and exporting goods.
How to Deal With Tight Logistics Capacity
The international transportation crisis has forced governments and businesses to come up with new solutions for mitigating tight capacity. Congress has recently introduced a bill ⎼ the DRIVE Safe Act ⎼ that can help relieve the country’s truck driver shortage. Carriers are implementing several measures ⎼ such as adopting more efficient unloading systems and reducing container detention periods ⎼ to help ease the shipping capacity crunch.
Despite all these measures, the logistics capacity crunch will not go away anytime soon. A fast-recovering global economy along with fewer shipping containers in inventories mean the transportation crisis is here to stay for the foreseeable future. Businesses need to form long-term partnerships with shipping providers to get priority access to limited capacity when they need it.
Getting Affordable Rates During Tight Capacity
If you run an import and export business or just need to ship your personal goods to another destination, the shipping container capacity crunch will make it difficult to transport cargo cost-effectively. Many logistics companies will charge you hefty fees for shipping your freight, which can put a big dent in your wallet or damage business finances. To combat the high costs of tight capacity, you need a logistics partner with extensive experience and expertise in the industry to get the most competitive rates for your freight.
Partner With Trans Global to Get Competitive Rates
With more than 30 years of experience operating in the freight and transportation industry, Trans Global Auto Logistics (TGAL) has the knowledge and expertise needed to overcome the challenges of tight logistics capacity. We have built solid relationships with numerous shipping lines and charterers over the past few decades, allowing us to get the most competitive rates in the market during times of shipping container capacity shortages.
Unlike other freight and logistics businesses, we own our warehouses, which helps us offer lower-cost shipping services to our customers. If you’re struggling to get affordable rates for shipping your cargo because of tight logistics capacity, we can help. Call us at 972-559-3229 to learn more about our transportation services or request a quote for shipping your cargo.