Impact of Shipping Container Shortage in LATAM

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By: Victoria Nieto -- Lead Analyst - LATAM

01 December, 2021

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Impact of Shipping Container Shortage in LATAM
ARTICLE

Introduction

The Covid-19 pandemic caused (and it is still causing) many disruptions in the supply chain of most of the raw materials, FMCG, MRO parts we consume in our everyday life. Transportation is one of the most affected services mainly because a lot of companies reduced their operations during 2020, and since the world economy stared the recovery process, we are seeing that they are struggling to respond to the high demand.

Maritime transportation

When we refer specifically to maritime transportation, we hear a lot about “container shortage” but according to experts, this is not the right term to use. Is not that the containers do not exist, is that they are not where they are supposed to be, at the required time [1]. The restrictions to avoid new outbreaks of the virus are forcing shipping companies to take unwanted measures, such as maintaining their workforce to minimum, close port terminals any time a new case of COVID-19 is presented, etc.

Therefore, containers, in 2019, could travel from Asia to North or South America, unload their cargo and go back, are now being held due to the delays of logistic companies. Sometimes containers are waiting for one or even two weeks to unload. If we also consider that 80% of all the consumed products are transported seaway, and that China holds 8 of the 10 most active ports in the world [2], we can have a perspective on the effects these circumstances are having on the prices.

Before the pandemic, the transport cost of a container from Asia to most of the LATAM countries was $S 2,000 on average. Nowadays, that price went up to $7,000; depending on the country, it is even higher. Small companies that are not being able to pass on that cost to their consumers suffer the most. Many of them closed and others are having serious financial challenges.

The concentrated supply is another relevant factor. Only five shipping companies hold 65% of the global market, which makes it very difficult to negotiate [3].

Finally, it is essential to mention that Latin America represents around 4% of the business for shipping companies. Europe and the US take the lead in this category, and they are going to have priority. This means that the region is not expecting any solution in the short-term. The situation is supposed to stay the same, at least for the next 6 to 9 months, with even higher prices [4].

Impact on LATAM countries

Impact of shipping container shortage in LATAM

BRAZIL

  • The Brazilian Parliamentary Front for Agriculture estimates a loss of $1 billion on the Brazilian agribusiness due to the global container “blackout” for 2021

  • The cost per container went from $2,000 to $12,000, which of course is having a tremendous impact on several sectors that are extremely important to the Latin American giant, such as inputs for animal feed, coffee, agriculture, household appliances and technological products [5].

COLOMBIA

  • Countries that face the Pacific Ocean suffer from higher prices due to the long distance, and Colombia is one of them.

  • Before the pandemic, the cost of shipping a container from China to Colombia was between $1,500 and $2,000. Now-a-days, it varies between $13,000-15,000.

  • This is not causing disruption only for imports. Due to the delays and shortage of containers, coffee and sugar exports are being diverted to ports in the Caribbean, generating additional costs of 30-70% [7].

ARGENTINA

  • Most Latin American countries are used to inflated inflation rates. However, Argentina is one of the most affected by this factor. The inflation rates in Argentina are between 38 -45% per year, for the last three years. This is one of the reasons why Argentina is so injured by the logistic situation

  • In addition, long periods of drought have caused the Parana River (one of the main routes for international commerce) to descend below its minimum height. As a consequence, the ships carrying full load are not allowed, causing a delay in deliveries and higher cost.

  • The national industry is highly dependent on imported inputs. Therefore, the most affected sectors are household appliances, shoes, technological products (computers mostly), automotive and construction goods. The cost of shipping a container from Asia reached $9,000, an increase of 360% compared to the year before [6].

 MEXICO

  • According to experts, in Mexico, there is no inconvenience to respond to high demand of logistic services in port terminals. One of the main reasons is that the Manzanillo Port is currently being able to handle the higher flow, even higher than in 2019.

  • They are not exempt of the price increase though, which went from $2,500 to $15,000. However, shortage of products is not an issue for Mexico at this moment [8]

Conclusions

According to Felipe Astudillo, VP of the Trading Chamber of Santiago, shipping companies have had the best year of the past 15 – 20 years; however, they are not the only actors in this play, therefore they are not the only ones responsible for the price increase. Port terminals are operating with minimum personal, making the load and unload process extremely slow. Since imports are being prioritized, whenever a ship arrives, the imports are unloaded first. After that, in most occasions, there is no more personal or even time to load back the ship [9].

In conclusion, the LATAM region is not part of the top clients for shipping companies, so delays and high prices are expected to stay similar for at least a very good portion of 2022. Prices are supposed to go down eventually, but they won’t reach the values of 2019.

A known recommendation is that companies can organize and schedule their orders with at least 4 to 6 weeks ahead, so they can count on their products on time.

Consolidated cargo is not the best option under the circumstances. All processes are faster if each client can control 100% of the cargo.




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