Diversification of the supply chain is more important than ever

'In container shipping, you would be wise to base your strategy less on price considerations and shift the focus to assurance of supply.' - Jan Roodenburg, associate partner at Boer & Croon.

Adobe Stock 138363683

At the peak of the corona crisis (and after the short-lived Suez Canal blockage), container shipping from Asia to Europe cost up to ten times as much as before. If containers were available at all, since they were located where demand for them was lowest. It were golden times for shipowners, while it caused buyers many headaches. As far as possible, they turned to near-shoring and moved production facilities to Eastern Europe and North Africa, among others. Production costs rose, but security of supply was guaranteed.

Meanwhile, container prices are back around pre-pandemic levels. Buyers can again order cheap products in Asia and have them shipped to Europe at low prices. So it would seem attractive to get rid of the more expensive European and African production facilities and return to the pre-pandemic situation. However, they would be wise to base their strategy less on price considerations and shift the focus towards assurance of supply. Through 'dual sourcing' alternative production facilities continue to run at minimum capacity. This reduces the likelihood of delivery problems, lost sales and dissatisfied customers in the future.

The history is the future
It would be very unwise not to draw lessons from this pandemic. Unfortunately, people often turn out to be short-sighted and not to take lessons from the past, especially if there are short-term gains to be made somewhere. The possibility of another disruption in container transportation cannot be ruled out at all. The war in Ukraine, tensions in the Taiwan Strait and the South China Sea could have a huge impact on global shipping. In many places along the Indian Ocean trade route, the situation is highly unstable. If another major oil supplier besides Russia is lost, long-distance transportation will become temporarily unaffordable. The hijacking of oil tankers by Iran also poses a risk. Finally, we must also take into account the real possibility of the outbreak of a new pandemic.

Meanwhile, the outlook for shipowners is not bright. With the arrival of hundreds of new ships, there is the threat of massive overcapacity. As a result, the possibility cannot be ruled out that debt will cause some of them to collapse. There is one upside, however: accelerated fleet renewal means that older and more polluting ships are being phased out sooner. It is striking that our environment has ultimately benefited from the corona crisis.