How Are Shipping Industry Problems Hurting Economies Around the World?

What can a shipping industry overview reveal about the impact of supply chain disruptions on the global economy? Delays and shortages have many long-term and far-reaching effects on the world. This includes everything from higher consumer prices to inflation and hampered economic growth. How do shipping industry problems impact the U.S., APAC and global economies?

Shipping Industry Impact on the U.S. Economy

A clear shipping industry overview shows a few key economic problems in the U.S. caused partly by supply chain challenges. These issues mainly concern the ripple effects of delays and congestion on the U.S. economy, particularly manufacturing.

Supply Shortages, Delays and Price Increases

One of the biggest shipping industry problems the U.S. has grappled with is congestion at key ports. In 2022, ships waited seven days at anchor on average at California’s ports. In December 2021, the number of vessels at anchor was almost equal to that at berth. Congestion is now beginning to decline, but managing port traffic effectively remains a challenge.

Congestion at ports is a serious issue for the American economy because it creates a ripple effect of delays that lead to price increases. It is particularly concerning for the manufacturing industry. When critical raw materials are stuck at anchor at ports, manufacturers have less access to the supplies they need, hampering output.

Consumers feel the economic impact of port congestion, too. It takes longer for price increases to trickle down to consumers, but delays eventually add up. This results from a lower supply for manufacturers and higher shipping charges for imports. Port congestion also contributes to restocking delays for retailers, making it more difficult for consumers to get goods.

Delayed, Expensive Exports

Exports can also be delayed by port congestion. Incoming ships are the bulk of port traffic and unloading them creates a ripple effect that holds up the loading of exports.

Additionally, fewer ships available for exports increases freight rates, worsening the ripple effect of price increases. Global container freight rates peaked in September 2021 at over $10,000 per shipment. Rates began returning to 2019 levels in the first quarter of 2023, three years after the COVID-19 pandemic triggered mass supply chain disruptions.

Inflation and Slow Hiring

All these factors add up, sparking inflation, which triggers even more long-term consequences. For example, supply chain disruptions and inflation contribute to a volatile job market.

Young people who graduated and entered the workforce in the past few years have faced one of the most challenging U.S. job markets in recent history. Surveys showed that nearly 50% of 2020 college graduates were still looking for jobs in 2021. Economic instability for an entire generation could lead to further financial challenges down the road.

Shipping Industry Impact on the APAC Economy

Asia-Pacific is at the heart of global supply chains and thus feels the impact of every disruption. The world also immediately feels the effects of any APAC shipping problems and supply chain challenges. In 2020, China’s ports experienced a surge in demand and traffic. The nation’s total exports increased by 3.6% in 2020, over six times higher than the .5% increase in 2019. This created challenges, though.

Any shipping industry overview of 2020 reveals the strain caused by high demand and low supply. Freight rates skyrocketed, ports became congested to historically high levels and certain products experienced dramatic price increases.

The Chip Shortage and Manufacturing Delays

One of the most infamous examples is the chip shortage, which impacted manufacturing worldwide, created shortfalls of countless products and sparked astronomical price surges. For instance, PC graphics processing units were selling online for double or triple MSRP in 2020, making a key computer component unaffordable for many.

An unprecedented rise in computer demand was a major contributor to the 2020 chip shortage. However, shipping also played a key role in the equation. The chip shortage persisted for over a year after the onset of the COVID-19 pandemic, although manufacturers were operating at maximum capacity.

This was partly due to shipping delays that made it challenging for manufacturers to catch up with demand. Additionally, companies were impacted by shipping delays that limited the amount of raw materials available at any given time.

A shortage of computer chips compounded with shipping delays for other raw materials created a ripple effect of holdups and shortfalls for manufacturers worldwide, particularly automakers, many of which are in the APAC region.

Delays and shortages for these manufacturers reduce their maximum output and, by extension, possible profits. Unfortunately, these shipping problems significantly affect small businesses. Many smaller Chinese companies canceled orders over the past few years because they could not export them.

Relocation of Global Trade

In 2023, shipping industry problems are creating a new issue for the APAC region. Geopolitical tensions and supply chain disruptions are prompting many nations, particularly the United States, to shift trade to other markets. Analysts say U.S. demand for Chinese goods fell by 40% in 2022.

This is creating new shipping industry problems. Now, Chinese ports have more ships available but less cargo to ship. As a result, blank sailing is becoming more common. Freight is experiencing more frequent delays due to canceled routes, despite greater space on vessels.

COVID-19 policies in China also contribute to shipping issues, resulting in economic challenges. Closing factories and ports due to COVID-19 infection rates delays countless shipments. In 2023, many importers no longer want to deal with these slowdowns, causing them to shift away from Chinese suppliers.

Many businesses are also trying to build agile supply chains, which prioritize flexibility and help minimize the impact of disruptions, delays and shortages. In many cases, this involves reshoring or moving to suppliers that are closer geographically. Many companies are shifting from APAC to suppliers with fewer shipping challenges.

Ripple Effects on All Countries

APAC and North America are two of the largest exporters and importers worldwide, but shipping problems impact all countries. There’s a close relationship between supply chain disruptions and shipping problems, which can be tied to several common economic impacts experienced by many countries.

For example, shipping delays and high freight costs hinder manufacturing, directly affecting economic growth. Expensive shipping also reduces the number of exports from any given country and contributes to inflation. This causes challenges for consumers like lack of essential goods, higher cost of living and slower job markets.

Policy-related shipping problems, particularly tariffs, can also have far-reaching side effects. Tariffs don’t just impact the two nations involved. They can also cause disruptions and price fluctuations for countries neighboring those directly affected.

Shipping Industry Overview: Challenges and Opportunities

A thorough shipping industry overview helps highlight the far-reaching impact of supply chain disruptions on worldwide economies. Delays and high freight costs aren’t just bad for businesses. They can cause inflation, slower labor markets, essential supply shortages and reduced economic growth. Understanding these issues is the first step to building more resilient supply chains and resolving shipping disruptions.