In the middle of November last year, shortly after the Start of the Christmas shopping season, Helen was meeting guests outside Xiamen Island, the mobile phone screen suddenly brightened, and a text message told her: The freight rate has risen again!
Helen worked for a foreign company, then quit his job to start a business, opening an online store on Amazon, selling wedding dresses made in Xiamen, Chaozhou and Suzhou Tiger Hill to North American consumers.
For a long time, Chinese sellers can easily make money as long as they firmly grasp the traffic and supply; as for cross-border logistics, it is almost the least important link in the entire chain, and sellers naturally rarely spend energy here. But now, it's almost all in their eyes.
"Freight costs all the profits." Helen looked at the phone and seemed to have endless bitterness. Since the spring of 2020, the COVID-19 pandemic has disrupted global supply chains, resulting in container shortages, congestion at terminals, and more than ten times higher freight costs! A wedding dress is sent to North America in Xiamen, and the cost of shipping is more than 20 yuan, and the air freight is 180-250 yuan, accounting for almost one-third of the price paid by consumers.
More than just eating away at profits. The ongoing cross-border freight crisis has led to order delays, slow inventory week shifts, rising return rates, and a worse customer experience...
Zhongshan Titan Crafts Co., Ltd. (hereinafter referred to as Titan) is a company that produces aromatherapy machines and humidifiers, supplying Amazon's head sellers. At the end of October last year, the company sent out more than 20 container containers, either floating in the Pacific Ocean or blocked at the West Coast terminal. This was difficult to imagine in the past.
In South Dakota, Kirsten Gjesdal opened a kitchenware online store, operating a total of 251 SKUs, tableware mats and other products made for China. At the end of last year, she got tired of constantly explaining to consumers when the tableware pads would arrive and eventually removing the shelves.
In short, the cross-border freight crisis is hurting the business foundation of cross-border e-commerce, and it has become one of the most concerned issues for sellers. With anxious Chinese sellers on the one hand and a crisis in cross-border freight on the other, people can't help but ask: When will logistics congestion and soaring freight rates stop?
Not long ago, we went to Jiangsu, Fujian, Guangdong and other places to investigate and visit, exchanged with cross-border related factories, sellers, freight forwarders, terminal/warehousing practitioners, shipping observation and researchers, and then combined with North American freight data and details, finally judged that the cross-border freight crisis will last at least until the spring of 2023, after which it will slowly return to normal.
If the crisis continues and profits continue to be squeezed, where will sellers go? The Ebang Power survey found that some people adjusted the product structure to reduce low-value products, some people simplified and compressed packaging to reduce transportation and warehousing costs, some people all In overseas warehouses accelerated inventory turnover, and some people accelerated the diversified supply chain and nearshore procurement layout.
01
Congestion! Delay! backlog! Prices!
How long will the seller's profits be eaten?
For trans-Pacific freight, the peak demand begins in late summer and ends on the eve of the Lunar New Year. Every year as the Spring Festival approaches, Chinese sellers send out the last shipments, factories gradually close their doors, and workers return from the coast to the hinterland.
Usually at this time, goods entering and leaving the ports of Los Angeles and Long Beach on the west coast of the United States will also usher in a brief slowdown. Los Angeles and Long Beach are the largest U.S. import gateways — more than 40 percent of U.S. shipping containers enter the country — and are also major ports of call for Chinese goods into the United States.
But now, the pattern of alternating off-peak seasons has been completely broken!
In January 2022, the Port of Long Beach handled 800,000 TEUs, up 4.8 percent from January 2021 and the busiest January since monthly records. February 2022 ushered in the busiest February in history, handling 797,000 TEUs, an increase of 3.2% year-on-year.
According to the Long Beach Post, congestion at the port of Long Beach has not abated in the slightest around the Chinese New Year in 2022, with a backlog of 105 cargo ships at peak, almost approaching the peak of the year. Mario Cordero, executive director of the Port of Long Beach, said in a statement shortly afterwards: "We expect the spring to remain busy. ”
The question now is, after a busy spring, can cross-border freight change in the summer? Ebang Power communicates with sellers, freight forwarders and shipping observers, most of whom are pessimistic, for obvious reasons.
In the spring of 2020, the new crown global pandemic, the outbreak of e-commerce in North America and Europe, the demand for disinfectants, game consoles, sports equipment, kitchen supplies, distance learning and remote office equipment soared. Soon, the volume of goods reaching the west coast ports of the United States soared, the off-season ended early, and the peak demand has not yet fallen.
Orders soared and capacity was tight, almost flattening seasonal fluctuations in freight demand and prices. To the north, more than 30 kilometers north of Long Beach, is Los Angeles, the largest port in the Western Hemisphere.
In May 2021, Los Angeles also had no off-season and continued to be congested and busy. Ninety percent of the goods there are imported goods, mainly from China (42%), Japan (13%) and Vietnam (10%). A month later, when summer came, Los Angeles announced that the port would become the first terminal in the Western Hemisphere to handle 10 million containers in a year.
Now, a year later, congestion and cargo volumes in los Angeles and the ports of Long Beach are growing at a rate visible to the naked eye. If spring remains busy, there's no reason to slow down in the summer, followed by a long North American shopping season.
Some economists expect the congestion and chaos in global supply chains to continue at least until the end of this year's Christmas shopping season. Lars Jensen, CEO of shipping consultancy Vespucci Maritime, even argues that the structural contradictions of freight containers won't peak until 2023.
Congestion! backlog! Delay! Prices! Almost all eyes are fixed on the port terminals on the west coast of the United States. Every day, Kristin Yesdar consults the port information of the West of the United States to guess when the ordered goods will arrive. In Zhongshan, Guangdong Province, Titan founder Li Hui has been following the news of the expansion of port cargo yards in Los Angeles and Long Beach.
In fact, not only China's factories, sellers and freight forwarders, but also the Biden administration in the United States has also targeted the ports of the United States and the West. Since last year, a series of actions by the Biden administration have tried to solve the supply chain crisis by using the port as an incision.
The first is the "7×24-hour" workday, and Biden called for 24/7 operations in Los Angeles and Long Beach. "Before the surge in freight, we recognized that we would have to work 7× 24 hours a day in the future, because e-commerce consumption can happen at any time, maybe 4 p.m. or 4 a.m." Mario Cordero said, "San Pedro Bay (the bay area where Long Beach and Los Angeles are located) is the largest trading partner, and those ports in Asia are running 24 hours a day. ”
One study showed that if the Port of Los Angeles transitioned to 24/7 operations, opening 168 hours a week, cargo would leave the port 25 percent faster.
Both ports have accelerated transshipment. The Port of Long Beach, which previously operated 16 hours/day, is now operating 24/7, Monday through Thursday. However, for 24/7 operations to be powerful, they must also be coordinated and supported by other parts of the supply chain, which is not easy and will take time.
The second is to charge container demurrage fees. Both ports stipulate that from 3 a.m. onwards, trucks are towed out of the port for 8 natural days, and for railways are 5 natural days; overdue periods will be charged demurrage fees of $100 for the first day, followed by $100 per day thereafter.
After the charges, the backlog of cargo ships dropped significantly, and the practice seemed to have worked. However, a Xiamen seller, who did not want to be named, told Ebang Power that because the demurrage fee sharing could not be agreed, most cargo ships chose to travel at low speed in the Pacific Ocean, and the shipping schedule may be extended. He has a shipment of cargo, departing from Xiamen on December 1, 2021, and is expected to arrive at the port of Los Angeles around January 10, but more than 20 days later, the cargo ship is still traveling in Chinese waters.
Kevin graduated from Shanghai Maritime University, worked in logistics for more than 20 years, and now works for a freight forwarding company under Dexiang Shipping. "In the past, as a Japanese customer, they had high requirements for the schedule and time limit, and now they have no temper." He said, "Don't talk about the shipping schedule, it is already good to find a position." ”
After the west of the united states became congested, some freight companies rescheduled their voyages to Oakland, more than 600 kilometers north of Los Angeles, or Savannah, New York and New Jersey on the east coast. Last year, cargo volumes in Auckland and East Coast ports skyrocketed as a result. Despite constant delays and price increases, most people prefer the Ports of Los Angeles and Long Beach, the most direct routes to Asia.
Given the ground congestion, Chinese sellers like Helen have instead opted for air cargo rather than continuing to wait anxiously. Many air cargoes are carried in the cargo compartment of passenger aircraft, and the price is 8 times that of sea freight. Last year, more than 60 percent of air freight from China to the United States docked in Chicago, Los Angeles and New York, mainly for products such as mobile phones, computers, consumer electronics and women's clothing.
*Source: US TradeNumbers
In 2022, the number one short-term risk to cross-border freight could come from outbreaks, such as the spread of mutant strains, leading to more lockdowns. However, even without the epidemic, the contradiction between demand and capacity is enough to attract attention. The long-term variables behind these really determine the life and death of cross-border sellers.
02
One kilometer eats up 50% of cross-border freight
Why it determines the future profit of the seller
If you only stare at the port, you may miss some key elements, such as people and systems.
Global supply chains, organized by containers, are like complex systems with self-regulating mechanisms. Sometimes, though, they become fragmented by all kinds of external shocks.
A few years ago, the Trump administration increased tariffs, affecting not only revenues at ports and airports, but also changing the basis of trade around them, such as dockers, truck drivers, train lines, customs brokers and financial institutions. Two years ago, the COVID-19 outbreak brought the global economy to a near standstill, and cross-border freight was hit hard again.
Supply chain collapses usually start with trucks. Goods shipped from China to the U.S. West Port are cleared and unloaded at the port, then trucked from the terminal to the transshipment center (or delivered directly by truck), loaded onto a train, and transported to the hinterland of the United States through the Alameda Corridor. In destination cities, containers are towed away on wheeled chassis, which are quickly loaded and unloaded by the end customer, and the wheeled chassis is trucked back to the rail yard.
Aaron Mackay, the son of an American farmer who now drives trucks at oakland harbor, likes to deliver containers on time. "Truck drivers are the most important people who keep America's supply." He said. The U.S. freight industry is very fragmented, with the majority of drivers working for small trucking companies, while 89% of trucking companies own 1-5 trucks.
This shows how important trucks are in the global supply chain. After years of development, optimization and run-in, the system works well. Ideally, the entire chain is predictable and precise, with trucks tightly connected to other links, while trucks stagger from truck to truck, with one leaving the harbor and the other pulling in.
In the early days of the outbreak, tens of thousands of truck drivers left their jobs, some forced to take vacations, some fired, and some simply changed careers. A few months later, when people procured more items earlier due to panic and the need for supplies, they found that there was a huge gap in truck drivers.
According to the American Trucking Association, the U.S. truck driver gap exceeded 80,000 in 2021, a record high. In the UK at the same time, the number of heavy Goods Vehicle drivers fell by 10% a year. The American Trucking Association estimates that the U.S. truck driver gap could exceed 160,000 by 2030; over the next decade, 1 million new drivers will have to be recruited to replace retired, voluntary and involuntary drivers to meet market demand.
The recovery of the supply chain usually begins with trucks. John Martin, a shipping economist who has studied the current freight crisis, argues that much of the congestion stems from being far from the docks. His research also shows that the collapse of logistics outside the terminals has exacerbated congestion on terminals and cargo ships, and has also led to a decline in hourly output for dockers.
From the wharf to the transshipment center, usually ranging from one kilometer to dozens of kilometers, bridged by truck transportation, almost accounting for more than 50% of the cost of trunk line transportation, called "middle kilometer". The "middle kilometer" is the key to consuming timeliness and creating congestion.
Given the position of trucks in global supply chains and the huge gap in U.S. drivers, the chaos of cross-border freight is likely to continue for a long time. Even by 2023, the recovery of global supply chains will be a slow process. In addition, considering the cost of the "middle kilometer" and the scarcity of truck drivers, the cross-border freight rates borne by sellers may remain at a high level.
In recent years, U.S. truck drivers' revenues have risen sharply, growing about five times the historical average. Walmart has more than 6,500 trucks, making it the third largest fleet in the United States. Last year, Walmart planned to hire 500 drivers for an average salary of $87,500 (about 555,700 yuan), and in some regions offered a $12,000 signing bonus.
For many blue-collar Americans without a college degree, the profession has become a high-paying route to the middle class. After years as a truck driver, Alan McKay brought his nephew into the industry as well. "I love the job I have now, it feeds my family," he says, "and the surge in demand means 'more work, more money.'" ”
Many U.S. West Coast dockers believe that despite rising freight-related wages, shipping companies operating west-port terminals are taking record profits. Ap Moller-Maersk, the world's largest container shipping company, operates one of the largest container facilities in the Port of Los Angeles.
In the United States, port and terminal operators do not directly employ dockers, but have signed agreements with the International Lonshare and Warehouse Union (ILWU) to hire dockers, truck drivers and warehouse workers under ILWU. ILWU is a powerful union in the port and terminal field, managing more than 20,000 members and covering 29 seaports on the West Coast of the United States.
ILWU is responsible for managing the day-to-day work of its members. Every morning, dock workers poured into the union hall to receive the day's safety speeches, and after a few minutes dispersed, some driving trucks, some driving cranes, and some operating lifts.
On July 1, 2022, ILWU's contract with the employer expires, which is negotiated every six years. According to local claims, negotiations have been launched after the Spring Festival, and the main content is port automation and the remuneration and treatment of dock workers. Maritime transport, the main form of transportation for global trade in goods, but most of the links still need to be filled out manually on paper. The digitalization of global supply chains is about to be the trend of the times.
In addition to the epidemic, another big short-term risk of cross-border freight is this negotiation. During the last round of negotiations, U.S.-West freight rates soared, port congestion and container retention were severe. Some merchants prepare in advance to send shipments to ports on the Gulf of Mexico and the East Coast to reduce supply chain risk.
03
The freight will also be shipped
The advance and retreat of sellers under the freight crisis
We surveyed and visited, combining data and details, to determine that the great congestion and chaos in the global supply chain would last at least until the end of 2022 or early 2023, the end of the Christmas shopping season.
Until then, the freight crisis will continue to erode the profits of sellers and stir up the industry ecology. But for long-term cross-border sellers, "even if the freight costs all the profits, they have to be shipped." Helen said.
In the past two years, due to the impact of the epidemic, cross-border freight has gone through a perfect storm. If at first it was a big fish in the water, and most people wanted to jump into a turbulent river and lake, then now it is a seller who is still churning in the river and sea, and finally quietly made a choice.
Before the outbreak, a standard container was shipped from Shanghai to Michigan, and the freight was $6,000-7,000. In September 2021, freight rates from Shanghai to Michigan rose to $26,000. Freight forwarders say freight rates could rise to $35,000 if U.S. rail and trucking get into trouble.
Cross-border freight prices are extremely opaque, and the positions released by shipowners usually have to go through several dealers to reach the sellers. "Last summer, when containers were at their tightest, the market reached its wildest moment, and people doing insurance in Guangdong were selling positions." Kevin told Ebang Power, "Many freight forwarders who have no positions sometimes have to look for scalpers, and many people grab them and sell them." ”
At that time, freight rates were calculated in days, and prices fluctuated with demand. Merchants adjust the commodity structure accordingly, small batches and high-value products can still withstand, while large volume, low value products, transportation demand is suppressed. Once congestion eases and freight rates gradually fall, these demands are expected to be released again.
*Source :D ata LB
Mindscope Products is a Los Angeles-registered toy brand that manufactures remote-controlled cars, radio-controlled stunt cars and talking pumpkin projectors in Dongyang, Zhejiang and Shantou, Guangdong, and sold through Amazon, independent stations and offline retailers.
After shipping rates rose, Mirror of the Mind founder George Balanchi raised prices for online products. A radio-controlled stunt car was priced up from $19.99 to $22.99 and then to $24.99. George Baranchi said that products sold online make it easier to raise prices.
To save costs, more toys are packed in containers, and many are shipped to North America and Europe, some in simple or compressed packaging. Some sellers even set up warehouses overseas, sending unpacked toys to the United States and packing them in warehouses close to consumers.
However, after the overseas warehouse was on fire, there was a burst of positions soon. Affected by the epidemic, express delivery door-to-door receipts are affected, once the receipt time becomes slower, overseas warehouses will burst, the result is that some urgently needed goods can not be replenished in time, and others have excess inventory. Order delays increase the return rate of e-commerce packages, and returned and damaged products occupy warehouses, further exacerbating warehouse congestion.
Over the past two years, warehouse vacancy rates in the U.S. and Europe have been at record lows, approaching 1.5 percent in the U.K. and falling to 4 percent in the U.S. inland, while warehouse vacancies near ports are less than 2 percent. And those warehouses that are vacant, the price is constantly rising. Along with the rise in rents, there are also overseas warehouse labor costs, which almost doubled in two years. A Xuchang company said that they set up overseas warehouses in the United States, and the salaries of employees before the epidemic were 2400-2600 US dollars / month, and rose to 4700 US dollars / month in October 2021.
"In the past two years, cross-border e-commerce, what can be solved with money, is not called a problem." Kristin Yesdar said that eight months have passed since the time a pot lid was placed from the time the order was placed to the time it was received. Eric Poses said: "If I can reduce anxiety, I am willing to reduce profit margins!" ”
In 1997, Eric Poseidon founded all things Equal, a toy company in Miami, Florida. Five years ago, in order to save costs, he transferred the production of board games and card games from the United States to China, handing over to Hong Kong's Dafa Tobacco Industry and Shanghai Hengren OEM.
During the pandemic, Eric Poseidon developed a card game called Worst Case Scenario for $19.99. Originally planned, the shipment was due to arrive at the U.S. retailer Target's distribution center in early June 2021, but it remained in the Port of Seattle for several weeks and did not arrive until mid-July.
Eric Posey was tired of waiting, tired of asking, tired of being anxious about it. Last year, he began planning to accelerate his diversified supply chain and nearshore sourcing footprint.
At present, most of the games with the same everything are still produced in China, but we hope to find suitable foundries in the United States or neighboring Mexico to provide some of the production capacity. Eric Bo raced many places and has not been able to do so.