Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
The Container Price Crisis — Explosive Growth and Solution
Key takeaways
- The container price crisis is a surge in shipping container costs and limited availability, disrupting global supply chains and raising the price of goods.
- The COVID-19 pandemic only exacerbated the container price crisis, with many operations left with no choice but to shut down.
- Digital platforms and IT solutions are viewed as a potential remedy for the container price crisis.
Have you ever wondered why the prices for today’s commodities are still on the rise? Well, here’s one article that will explain to you why the price of goods is at an all-time high and one of the drivers: the container price crisis.
Once you’re done reading this article, you should by now understand why the container price crisis is giving everyone such a headache, most especially in the procurement industry.
What is the Container Crisis?
Whenever the prices of commodities go up, people always blame the ongoing pandemic. Factories are down, everyone is not working on-site, and that companies are paying for more on their workers working at home just to prevent the spread of the coronavirus. While there is a truth to this, the real perpetrator is the current container crisis that is causing a lot of headaches to the global shipping industry.
Before COVID came, there were already existing issues that affected the global shipping industry. However, when the pandemic started and companies that build the shipping crates had to close down their factories to avoid widespread contamination, the costs for buying shipping containers have gone exponentially high.
You should know the importance of logistics in procurement processes. We have an article on product sourcing where you can learn more as to why any problems in the sourcing industry can cause a lot of problems for procurement companies. We also tackle more about this issue in our Negotiation Course For Procurement Professionals in which you can enroll online and take part.
A year and a half after COVID 19 reared its ugly head and shook the world’s economy, procurement departments are still scrambling all over the place to fix the logistics chaos that’s happening even today. The cost of transporting goods by container ship has gone up to 526% over the past 12 months. That’s double the increase since May 2021.
The Plightof the Shipping Containers
In the past, shipping containers are valued at around $2,000. Today, the price for a 40-foot shipping container has gone up to $9,000. CNBC reported that the cost of goods transported from Asia to the West Coast of America has increased by 145%. It also doesn’t help that China, the world’s leading producer of goods, is now on the road to economic recovery, thus there is now a growing increase for products rather than services.
This will ultimately lead to an imbalance of global trade since shipping containers are now more expensive but are only available in fewer numbers.
Around 170 million shipping containers were used to transport 90% of the world’s goods before the global pandemic. Today, COVID 19 has left global shipping lines with backlogs and delays due to labor shortages, coupled with reduced capacity in logistic systems, together with port congestion and quarantined cargo.
What is the Solution?
Today, companies are turning towards digital trading platforms to help them with their procurement needs. These digital platforms can connect buyers with suppliers that are closer to them geographically, thus eliminating the need for global shipping costs.
We’ve always believed that IT procurement will ultimately become the answer in solving issues with procurement in this world where everyone has limited options.
It may present as a good possible solution, but major companies remain skeptical since trading is one of the world’s most ancient professions and some of the biggest trading companies in the world are still relying on good, old methods for transporting and delivering goods.
These companies can only place their hope on advanced medical science, as the world continues to spread vaccination efforts to curb the spread of the pandemic.
Conclusion
In conclusion, the current surge in commodity prices is significantly attributed to the ongoing container price crisis, exacerbating challenges for the global shipping industry.
The pandemic-induced closure of container manufacturing facilities has led to a staggering 526% increase in container shipping costs over the past year, severely impacting procurement logistics.
The once $2,000-valued 40-foot shipping container now commands a price of $9,000, resulting in a 145% surge in transportation costs from Asia to the West Coast of America.
As companies grapple with this crisis, some are exploring digital trading platforms to connect with geographically closer suppliers, potentially alleviating the dependence on costly global shipping.
Despite these innovations, skepticism persists among major trading companies, emphasizing the need for a multifaceted approach and, possibly, a resolution through advancements in medical science to address the ongoing pandemic’s ramifications on global logistics.
Frequentlyasked questions
What is the container price crisis?
The container price crisis is an ongoing economic problem due to the high demand and price of shipping crates.
What countries are affected?
Almost all countries rely on shipping companies for trade, particularly China and the United States.
How much have container shipping costs increased in the past year?
Container shipping costs have surged by 526% over the past 12 months, doubling the increase observed since May 2021.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
