Insight - Global shortage of containers affects prices

Under control: A file picture showing containers being stacked up on a ship at the port of Antwerp, Belgium. Against the concerns, companies are managing as best as they can, with some viewing this as a temporary problem. — Reuters

THE worldwide shortage of containers is hampering the smooth flow of exports and imports, and pushing up logistics costs.

As this leads to higher cost, insurance and freight of goods traded internationally, many companies will pass on the costs to customers who will, in turn, pass them onto the end-users.

Could this be the start of a spiral of higher prices especially at a time when world commodity prices are rallying?

“This is only the beginning and one contributing factor. The prices of soft commodities have yet to skyrocket.

“Watch out for the rise in prices of food and other commodities. Crude palm oil now costs RM3,450 per tonne compared with RM1,880 per tonne just less than two years ago, ’’ said Inter-Pacific Securities former head of research, Pong Teng Siew. (pic below)

It is inevitable that this shortage would affect the export momentum, the impact of which may be felt in the fourth quarter.

Price pressures in terms of rising costs of doing business and prices of products may be seen in the first half.

Against the concerns, companies are managing as best as they can, with some viewing this as a temporary problem.

“While the situation is still under control, many shippers are facing problems to export their products, and ports will be getting less export cargo, ’’ said MMC group managing director Datuk Seri Che Khalib Mohamad Noh. (pic below)

MMC is offering discounts for empty containers to attract more of these into its five ports in Malaysia but shipping companies are positioning empties to the more lucrative route for East West cargo.

A chunk of MMC’s cargo is bound for intra Asia where freight rates are substantially lower than those for the East West route.

An imbalance in trade flow has occurred with the rebound in China’s economy, and high demand from the United States and Europe while demand from Asia for American and European goods, is weak.

With the container congestion in the US gulf region, container vessels and air containers have been unable to return to Asia.

There is an acute shortage of containers especially in Asia, but this is a transient situation leading to higher than normal logistics costs in the short term, said Fortress Capital CEO Thomas Yong.

Science, technology and engineering company UWC, sees the cost impact as manageable as it is selling at ex-work, co-ordinating logistics for clients that will take care of the costs, while the majority of its input costs are from local sources, said UWC deputy CEO Matin Ng.

To cocoa manufacturer Guan Chong, this global situation and the surge in freight rates may continue to weigh on purchasing schedules and overall demand of various industries.“Market participants are expecting the situation to persist until March, ’’ said Guan Chong managing director and CEO, Brandon Tay, (pic below) adding that demand for cocoa especially among its multinational, as well as domestic customers, is expected to be adequately supported.

At Guan Chong, product prices are also dependent on, besides freight costs, factors such as cocoa bean prices, processing costs and market demand.

Integrated electronics manufacturing services provider VS Industry expects to sustain its growth momentum this year, even as these shortages are pushing up shipping costs.

By doing its planning in advance, and taking into account the additional shipping time required, VS Industry is still able to obtain its raw materials.

Finished goods are delivered ex-factory, where customers arrange for containers to pick up the goods and pay for the shipping costs.

Based on trade patterns in the past, condom maker Karex does not anticipate this to have a major impact, unless there is “really a huge increase in pricing.”

“This could affect our business as distribution costs account for almost 10% of our overall cost base, ’’ said a Karex spokesperson.Currently, Karex is able to secure bookings of containers at reasonable pricing, as there are many logistics networks still operating at limited capacity.

While shortage of containers will affect its exports and imports, industrial chemicals supplier Luxchem does not see any impact on product prices, as freight cost is only a small percentage of unit price.

“The only impact is shipment delay; we will manage the situation accordingly, ’’ said Luxchem CEO Tang Ying See.

The resultant surge in product prices may be negative to producers facing container shortages, but may be positive for companies facing pent-up orders where due to the shortage, goods cannot be shipped out on time, said Areca Capital CEO Danny Wong.

While this problem is expected to be resolved in the next two to three months, it is the lag effects that is causing concern, and would have to be managed.

Yap Leng Kuen is the former business editor of StarBiz. Views expressed here are the writer’s own.

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