Opinion: Chinese Lockdown Threatens 600% Freight Rates Spike As Panic Sweep Across Supply Chains

In every link of the global supply chain, shipping problems are being severely aggravated. Freight rates are spinning out of control as ports remain extremely congested in the U.S. and China. And at the same time, rising transportation costs are worsening labor shortages and exacerbating delivery delays all around the world. The operational nightmare just keeps getting worse, and industry CEOs are alerting that consumers will be the ones paying for this unprecedented mess as retailers face a threatening dilemma: either paying higher shipping prices and passing along those increased costs to consumers or risk their business by letting shelves go empty. The new round of lockdowns imposed by Chinese authorities is adding disruption on top of disruption to global supply chains and significantly worsening port congestion worldwide. The knock-on effects are already being felt in U.S. ports, where congestion continues to spread from the West coast to the East coast. Even though the restrictions are expected to be lifted this week, Project44 leaders argue that more slowdowns are likely to be felt worldwide in the days and weeks ahead. As a result, hundreds of vessels are arriving all at once at U.S. ports while others have been unable to leave and make the return trip to China. Right now, the average shipping rate for a 40-foot container leaving Shanghai to Los Angeles is 125% higher than a year ago, sitting at nearly $12,000 per container, the Drewry World Container Index informed. And given that supply chain bottlenecks, including port congestion, are expected to linger and most operators have signed long-term charter contracts at high shipping rates, prices are likely to stay elevated throughout the whole year. On top of that, the Russia-Ukraine crisis is also significantly impacting the flow of goods around the planet. Russian forces are cutting off entire shipping routes and shipping companies are suspending services, which is fueling even sharper freight rate hikes, supply chain firms said. Freight rates for a container ship have skyrocketed, with a spike from 157% to 591% since the conflict began, Alperin data shows. The situation is triggering an even worse labor crunch. Considering that 198,123 of seafarers are Russian, while Ukraine accounts for 76,442, 15% of the world’s seafarers come from the two countries, and with crew movement pretty much impossible out of both nations, shipping companies are having to extend these workers’ current contracts to fill any immediate gaps. But given that tensions between the two countries continue to rise, the work environment at these ships is becoming tense, too. To make things worse, transportation problems on land are also compounding. In America, the CEO of Swint Logistics Group, is alerting that the rise in fuel prices will ultimately be passed on to the consumer as well. Over the past two weeks, the average U.S. price of a gallon of gasoline shot up a staggering 79 cents to a record-setting $4.43 per gallon. For truck drivers running with diesel engines, the increase has been even more pronounced, climbing $1.18 over two weeks, to $5.20 a gallon. Diesel is now $2.11 more expensive than one year ago. The increase is likely to raise our overall cost of living given that the vast majority of the products we buy get delivered by big trucks, which cost a lot more to operate. lIn view of all this, retailers are having to make a tough choice: either paying higher prices for transport and pass along those higher costs to their customers or risk seeing their inventories collapsing and their shelves empty. At the end of the day, there isn’t much they can do since they operate on low-profit margins. Consumers have been facing blow after blow as global events lead to more dirsuptions in every aspect of our lives. And while leaders make decisions that end up resulting in a lot more financial instability in lives of millions of people, we become more and more vulnerable to a system that is designed to fail. One thing is certain: A gloomy future is awaiting us as the world collapses into chaos.