As non-essential retail reopened its doors following the full autumn lockdown in England, it came as a huge relief for both retailers and the wholesalers supplying shops across the UK. Orders were beginning to come in again, providing a much-needed revenue boost ahead of the festive season. Yet, for those retailers and wholesalers who import products to the UK, an unprecedented rise in shipping costs - which could continue until as late as June 2022 - is threatening to quell any hope of a swift post-pandemic recovery.
Speaking exclusively to The Leaders Council of Great Britain & Northern Ireland, Jeremy Piercy, managing director of leading fair-trade product supplier Shared Earth, shared his experience of these shipping price hikes, which could cast grave doubt over the hopes that many importing retailers and wholesalers have of recovering from 2020’s loss of sales.
Piercy said: “As retailers, we are delighted to be open again following lockdown, and as wholesalers, supplying about 2,000 shops across the UK with orders starting to come in again. However, we and presumably most importers to the UK, face unprecedented increases in cost for shipping as we import our products into the country.
“According to information provided by our shipping agent, a container that would have cost us £1,200 before Covid, for which we were quoted £2,800 just a month ago, now costs £3,300. In terms of reasoning for this, we were informed last week that there was not enough space on the shipping vessel, hence the increase in price. Furthermore, we were told that the shipping agent cannot guarantee shipment on the next vessel and apart from the delay, the price may go up even further than that, too. In fact, we have been informed that the cost of shipments from China has gone up six-fold.”
Piercy revealed that the increase in shipping cost was likely to wipe out any profit that Shared Earth was likely to make, which would have a knock-on effect for the consumer.
“The only way we will be able to cope with the increase in our outgoings will be to increase our prices, and this will inevitably lead to a substantial reduction in sales.”
The indications coming from the freight industry are that the situation could rage on until June 2021, and Piercy fears that this will not just come as a major blow to businesses such as Shared Earth, but may have a significant effect on inflation.
Piercy explained: “I imagine that in the food industry, where margins are lower, there could be a considerable increase in prices which will affect everyone in the UK including all our supermarket chains, and potentially result in massive inflation. It appears that little has been done to ease the congestion at ports like Felixstowe and with potential Brexit problems too, we could be facing a crisis never seen before.
“This is an important issue which could have a negative effect on any post-Covid recovery, and I would urge government to address the issue as soon as possible.”
The freight forwarder that represents Shared Earth became so concerned about the situation that on November 16, 2020, he wrote to his local Conservative MP for Southport, Damien Moore, to request that the issue be addressed in Parliament immediately.
Mr Moore’s office responded on November 16 and November 26 to inform him that the letter had been forwarded onto the office of international trade secretary Liz Truss. There has been no response to date.
Following Piercy’s comments, we approached his freight forwarder for his thoughts on the matter, and he duly informed us of the concerns that he had shared with the office of Damien Moore.
He recalled: “Back in March when we faced the first wave of Covid-19, we saw shipping lines reduce their global vessel capacity on the water by 50 per cent, meaning that only half of the global container fleet was in operation. The largest port in England, Felixstowe, operated by Hutchison Ports Hong Kong, in turn run by a local merchant banker, furloughed 900 of its workers simultaneously.
“During the initial lockdown, we saw e-commerce companies continue trading and even begin to boom. When the outdoor leisure industry re-opened, we saw people who were furloughed taking up activities such as sports and fishing, as well as golf when golf courses began operating again. At this time, imports and exports including PPE represented most business, and apart from airlines dramatically increasing cargo prices for PPE, the industry continued to trundle along without sea freight prices going up by the container.”
However this situation then changed once the high street could reopen.
Piercy’s freight forwarder said: “When we saw non-essential retail return, people were being encouraged to go out and spend to support the economy. The high street saw flash sales of 20 per cent and 30 per cent, and indeed in some cases even as high as 50 per cent for NHS workers. Once the sales on the high street had commenced, goods were moving off the shelves very quickly and high street stores had to place urgent replenishment orders with the Far East and Indian subcontinent, and this then resulted in an unprecedented increase in import volumes.”
This increase in import demand left it difficult for shipping lines to cope.
“With only 50 per cent capacity on the water still, shipping lines found it difficult to manage the increase in demand. Even now, current global capacity is at maximum around 60 to 65 per cent. It must be remembered that at this time, no furloughed employees at the Port of Felixstowe had been asked to return to work to cope with increased volumes. Over July and August, preparations for the festive season began to impact volumes as well, with demand once more going up.”
With this increased amount of strain on shipping lines, freight companies have now begun to increase their freight costs.
According to the director of the freight forwarder who spoke with The Leaders Council “Over the last four to six weeks, shipping lines have increased freight costs and in my view been acting more like pirates, even amid a global pandemic. Rates four to six weeks ago stood at around $1,600 to $1,800 per 40-foot container. These rates have now risen to around $4,400 per 40-foot container and rose again to around $5,000 on November 15. A further increase was then announced by Maersk on December 1 to around $6,600 which is the current standing.”
Such extensive price hikes, in their view, constitutes exploitation of businesses, which he believes will lead to many firms failing if government intervention is not forthcoming.
He added: “To me, this is total exploitation of companies and importers alike. In this current climate, businesses will fail if the government allows this to happen.”
Furthermore, the freight forwarder was concerned that improper logistics planning from ministers has left ports in a difficult position, with empty containers stacking up from imports and large containers of PPE left sat on quaysides without being collected.
“The Port of Felixstowe has reached a near meltdown stage, since there are so many empty containers stacking up from the imports and also containers of PPE sat on the quayside in both Felixstowe and Southampton, claims which can be supported by two other forwarders who have dealings with the government concerning PPE supplies to the NHS.
“Whilst I appreciate that the government did not want to get caught out with two little a supply during this time, I think the logistics planning could have been far more effective. Clipper Logistics who are one of the biggest distributors to the NHS are full and can only take stock in from the docks, as and when the NHS call off existing stored stock. In the meantime, I have had it confirmed that two freight forwarders handling NHS PPE imports have had to pay £1.3 million and the other company £1 million in rent and demurrage charges to the shipping lines, respectively.”
The agent we spoke with believes that the situation at Felixstowe has been exacerbated by the fact that the majority of its 900 furloughed staff have not been recalled to work, meaning that there is still severe congestion at the port. Should the situation be allowed to persist, there are fears that a significant impact could be felt across the whole supply chain route.
“Felixstowe still have most of the 900 staff on furlough that could assist to reduce the severe congestion there. If this is not addressed now, it will mean the saturation of other ports such as Southampton and London Gateway/Tilbury which are main deep-water dock terminals. Should this happen, the whole supply chain route will be severely impacted, meaning potential delays to food import and medicine shipments and indeed any further PPE shipments required for the NHS and the general public.”
Echoing Piercy’s concerns, his freight forwarder warned that if shipping lines are able to continually increase prices at their leisure, retailers and wholesalers will have little alternative but to increase the prices of imported goods which will have a knock-on effect for inflation.
“If the shipping lines can continue their exploitation, it will again mean increases in price of basic everyday goods that originate from abroad, causing huge inflation. I shared these concerns with the office of my local MP to ensure that Parliament addresses this as an urgent case, and there are at minimum a further 50 logistics companies like ours that will support my actions.
“This is a significant threat to post-Covid recovery and with the full enactment of Brexit to come in less than a month’s time, we must act now.”
With concerns among importing retailers and wholesalers, and logistics companies rising over the issue, it would be no surprise to see ministers turn their attention to the matter soon, for it is an issue the government can ill afford to neglect.
Photo by Kurt Cotoaga on Unsplash