Cargo Cartels

Supply chain nightmares have plagued the home, gift, toy and other industries for over two years now, with shipping costs from the Far East soaring to record highs. The pandemic might be largely over, but the logistics issues are still going strong, with shipping companies raking in titanic profits which have the potential to sink businesses which can no longer afford the massive fees involved in bringing containers over from China.

Some might say this is no bad thing in the long run, as Britain in particular and Europe in general are far too reliant on goods imported from the Far East and we need to start manufacturing at home if we are to become strong, resilient and (the dream) self sufficient once again as a nation.

As the situation unfolded over the past two years, many manufacturers began seeking alternatives to producing in Far Eastern factories, which apart from posing supply chain issues that are now painfully clear, also raise concerns about slave labour – for example in the fashion industry, which had become largely reliant upon cotton picked and processed by the persecutd Uyghur minority in China. Other manufacturers are turning to India, Turkey, South America (still a major shipping lane away) or even closer to home in mainland Europe for their requirements.

In the long term this will all be for the good, reducing the huge environmental impact associated with carting boatloads of goods over huge distances to satisfy ever-more demanding consumers in the affluent west, but in the meantime the Cargo Cartel is still making a mint on the back of these volatile socio-economic conditions.

As reported in The Sunday Times, British shipbroking magnate, Andi Csae, took home £6.8mn in the past year – more than the bosses of Sainsbury & M&S combined. Whilst the bonanza being enjoyed by cargo firms has come down slightly from the record highs of a year or so ago, the average cost of shifting a 40ft container from China to northern Europe is $10,206 – seven times what it was in 2019.

The shipping industry as a whole is thought to have taken $188.5 billion net profit in the past year – more than the profits of Apple and Google combined. This translates to around £29.1 billion extra annual costs for British importers – a figure that is almost matched by the £28.1 billion faced by our exporters.

The problem is especially acute for retailers of white goods such as AO, which recently had to ask shareholders for £40million of extra funding, or fashoin retailer, Joules, which has brought in KPMG to help with its problems. Toy retailer, Gary Grant, owner of The Entertainer, expressed surprise that the 3 major shipping alliances – The Ocean Alliance, THE Alliance and 2M – are being allowed to effectively fix their prices in unison, pointing out that the costs of shipping are doing much to drive the damaging inflation we’re seeing right now. The chief of Buy It Direct, Nick Glynne, accused the shipping firms of “abusive market dominance”, as shipping prices rise from 3% to 16.5% of his business costs. There are even suggestions that shipping firms are using cancellations as a way of keeping demand – and prices – sky high.

The British government has been strangely silent on the situation, which is doing so much to fuel the present cost of living crisis affecting this country. That might be because the government itself is benefiting from bumper import duties. Rather than lead the G20 in tackling the problem that’s affecting businesses and consumers worldwide – ‘cracking down on profiteering by big shipping companies’, as Liberal Democrat leader, Sir Ed Davey, puts it – the situation is allowed to roll on largely unchecked.

A UK Competition and Markets Authority – one of five formed worldwide in February – is now investigating the anti competitive behaviour of global supply chains, may help to redress the balance, although shipping firms might argue that the 2021-22 bonanza is only helping them to recoup profits lost in 2020 when the world went into lockdown, during which many logistic firms went into the red.

Despite not having a major shipping company since the bedevilled P&O was acquired by DP World in 2006, perhaps it is time for Britannia to assert its reputation as a country which rules the waves?

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Cargo Cartels

Supply chain nightmares have plagued the home, gift, toy and other industries for over two years now, with shipping costs from the Far East soaring

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