Shippers Unintended Consequences?

Interesting article in the NY Times

The cost of shipping something from Hong Kong to Los Angeles is at an all time high ($2,624), as the above chart shows. Last year the price was at an all time low ($871). The current price is even higher than during the boom times so what gives?

The price is the determined by supply and demand and price changes are determined by changes in supply and demand. Over the past year, shippers have reduced significantly the number of ships sailing and have slowed the speed at which the ships move, making them less efficient. This has the effect of greatly reducing the supply of space.

In addition, demand has gone up over the previous year as retailers order and sell more goods.

The effect has been a double shift with the overall result being higher prices. Not only that, but the indirect cost of wasted time, missed shipments etc greatly adds to the cost which is not reflected in the price but can be measured in the increased use of air freight, as people substitute out of ocean and into air.

To get products in on time, they need to spend a lot more. Cost Plus, for instance, has used air freight for some time-sensitive items, and that costs about 10 times what sea freight does, said Jeff Turner, who oversees supply chain and store operations. And for sea cargo, even though contracts with freight companies exempt Cost Plus from summer surcharges, known as peak-season surcharges, the retailer is paying them.

“We have agreements that literally say we don’t have peak-season surcharges for our business, but we’re treading completely new ground. Our carriers are coming to us and saying, ‘If you want to get on the vessels, we need to figure out how you guys pay peak-season surcharges,’ ” Mr. Turner said.

Mona Williams, vice president for buying at the Container Store, said the company was telling manufacturers to book space well in advance, and that it was moving delivery dates earlier.

And for items that simply must arrive, well, there are ways to do it. “Sometimes you can offer to pay a steamship company a larger amount of money, and they might take somebody else’s container and not put it on,” said Jeffrey Siegel, the chief executive of Lifetime Brands, but “in most cases, you just have to wait.”

So the only way to get your goods on time is to pay more and essentially bribe somebody to do their job? I mean, with shippers being monopolists and all, customer service never part of their business plan, but still you would think that such practices would be illegal, to say nothing of being immoral.

These shippers basically have the US economy in a chokehold since they are restricting trade.

Higher prices will force shippers to increase their capacity to increase profits. This takes time for the market to react and these spikes in price occur because of short term dislocations. Companies hedge their risk of these short term dislocations by long term contracts, but if these long term contracts are not being honored, how can any business be conducted?

Business is based on trust and where trust is lacking, there is always the power of the law to make sure contracts are being filled.

The amount if ill-will for these shippers is almost palpable.