IT will take about a foot for a spoonful of food to reach the mouth; to reach the dining table, it’s farther than that. Nearly 10,000 nautical miles: 9,629, to be exact. That is the distance between the Port of Rotterdam, Europe’s largest seaport, and the Manila International Container Terminal, the Philippines’ busiest port.
That is also the exact length it takes for a container of pork products from the world’s top exporter of pork to arrive in the world’s ninth-biggest consumer of pork meat.
Vice versa, it’s also the same mileage that shipments of virgin coconut oil from the Philippines, one of two of the world’s largest exporters, cover upon reaching Europe.
Prior to the pandemic year, it took about a month to a month and a half on average to complete one delivery; either of pork from Europe to the Philippines, or coconut oil from the Philippines to Europe. Today, it takes an eternity…of sorts.
The grounding of the Ever Given at the Suez Canal in March came at the worst time, compounding the persisting global shipping problems that stemmed from Covid-19-related lockdowns and problems that started late last year.
After certain economies, such as China and the United States, reopened their economies in the latter part of 2020, global trade took one hellacious ride: lack of shipping vessels and container imbalance.
Woes, headaches
SINCE most of the vessels and containers were docked in the West after global trade was put on halt due to the health pandemic, importers and exporters had to scramble in seeking to source their logistical needs.
The scrambling led from one problem to another; it has shaken industries and their captains on how to thrive amid today’s uncertainties: delayed shipping arrivals and near record-high freight costs.
For the Philippines, a country that is not considered a major trading port in the global trade, these problems mean a myriad of headaches.
Royal Cargo Inc. Chief Operating Officer Jet B. Ambalada was straightforward about it: the country is facing a “perfect storm.”
“We are facing shipping and logistics problems. For example in Europe, there are a lot of delays due to Covid-19 problems and challenges such as lockdowns,” Ambalada told the BusinessMirror. “We are now encountering two weeks to a month’s delays in our arrivals.”
He explained that the problem in the global shipping industry emerged last year when the global economy ground to a halt as the virus risked those operating the gears of the trade. Due to lockdown measures, the number of drivers and ship captains allowed to work were pared down and vessels and containers were grounded in major ports like those in Europe and the US.
Overwhelmed with orders
HOWEVER, when global trade gained a bit of momentum last year, the shipping industry was overwhelmed with orders from developed countries like the US and China. This resulted in a container imbalance. Countries that are not major shipping points or routes, like the Philippines, were at the losing end, Ambalada told the BusinessMirror.
He added that container-turnaround is also delayed due to lack of drivers in Europe, which is experiencing its third wave of Covid-19, with the spread of more transmissible variants.
Ambalada said huge economies like China, Singapore and the US have been more aggressive in terms of imports and exports, thus concerning the bulk of the available vessels and containers in the world.
“The major problem is that our transshipment points are already congested. For example, Singapore and China ports are congested since these countries are sourcing a lot of raw materials,” he said.
Rising costs
DUE to this situation, shipping costs for exports have increased “10-fold” with outbound shipments being delayed by a month to three months at worst, Ambalada pointed out.
He said the cost of shipping one dry container from Manila to the European Union has ballooned to $5,000 from the usual $800 (about P38,424.40 at current exchange rates). Shipping one 20-foot container from Manila to the US West Coast used to cost only about a maximum of $1,000 (P48,030.50); it’s now hitting $5,000 (P240,152.50).
Inter-Asia shipping rates have also ballooned to unprecedented levels with the Philippines to China route costing now as much as $2,000 from the usual $200, since we are outside the “preferred routes” of shipping companies, Ambalada added.
“We are being outbidded by our neighbors who can afford $5,000. The question is, who can bite the bullet among our exporters? Instead of catering to the Philippines, the vessels will just go to China en route to Europe since they can pay higher,” he explained.
Increase in shipping costs of importing goods from Europe and the US to the Philippines “is not significant” since there are available containers and vessels from these areas, Ambalada told the BusinessMirror.
He said they started to experience the problem in the last quarter of 2020 after countries like China started to buy more imports and were able to jump-start their economy again amid the pandemic; hence, exporting more goods than any other country.
Key issues
FELIX Ishizuka, president and CEO of Reefer Filipinas Express Line Inc., said it is undeniable that the industry was overwhelmed when demand surged in the latter half of last year.
“It is always supply and demand. Obviously, the demand went up and the container supply is scarce in every port due to congestion,” Ishizuka added.
Also contributing to the delays, he said, are the rules of countries to quarantine cargo and shipments in a bid to prevent the spread of Covid-19.
“China, for example, is getting heavy congestion for fresh produce. Normally they do not quarantine these; but now every container must undergo a minimum of three days,” Ishizuka said. “That is obviously going to pile up.”
He explained that the unavailability of space is felt across all segments of the shipping industry from dry cargo containers, break bulk to reefers.
Ishizuka pointed out that the cost of renting a reefer ship has now skyrocketed to $25,000 per day from the $9,000 per day to $10,000 per day recorded in June of last year.
“Freight cost is crazy right now; it is now at a level never seen before; never seen these reefer ship prices in the last 15 years of the industry,” Ishizuka told the BusinessMirror. “The most affected businesses are the small players who ship 5 containers at maximum.”
He added that the cost of moving used cars from Japan to the West Coast, say South America, is now at $5,000 per container from $1,000.
Uncertain that unloaded imported cargo would have an export replacement, importers are now shouldering additional costs in the form of prepositioning fees, Ishizuka said.
Effect to consumers
CONSUMERS ultimately suffered, and still suffer, since rising freight costs and other additional costs are just passed on to them, American Chamber of Commerce of the Philippines Agribusiness Committee Co-Chairman Christopher A. Ilagan told the BusinessMirror.
“Generally speaking, the global shipping and/or logistics issues we face today affect the cost effectiveness and efficiency of our supply chains,” Ilagan said. “The rising freight costs ultimately put pressure on general consumer prices as these are often just passed on to final consumers.”
He said some of their members “have been seeing delays in their imports and exports, ranging from a few weeks to a few months,” forcing them to “create new ways of coping with these realities.”
“One such coping mechanism comes in the form of building up of buffer stocks—with clear implications on working capital and warehouse costs,” Ilagan told the BusinessMirror.
Restarting economies
ILAGAN added they observed that another way of coping has to do with shippers getting creative with inter-modal transport options. He cited as example: from the traditional full reliance on ocean shipping from origin to destination, a shipper has considered a mix of utilizing air freight to get to a transshipment site that can accommodate a shorter delivery time to the final destination port via sea.
Ilagan said it is becoming “clear” that the fastest countries that would reach herd immunity against Covid-19 would “emerge faster” in the new normal of global trade; thus, reaping benefits of the global economic restart.
“Because of this uneven return to the ‘new normal,’ it wouldn’t be surprising that the laggard countries may find themselves having difficulties coping with shipment and logistics delays and elevated costs,” he told the BusinessMirror.
“The faster we can move to the ‘new normal’ in the Philippines, the faster the Philippines can take advantage of the global economic restart,” Ilagan added.
Slowed down
THE global container imbalance and lack of vessels have caused shipments of meat imports to arrive in about three to four months. This could derail the Duterte government’s plan to bring in cheaper imported protein sources with its pork tariff reduction and increase in the minimum access volume (MAV).
“We now are looking at three months to four months of arrival,” Meat Importers and Traders Association (Mita) President Jesus C. Cham told the BusinessMirror. “There’s a lot of congestion caused by Covid-19 pandemic. It has created an imbalance in trade with containers going one way and the others returning without a back-load.”
Cham added that North America is also reeling from the impact of severe winters that have slowed down the movement of people, trucks and cargoes in the West.
“We will know only of the additional charges when the cargo arrives; and they are delayed. Upon arrival, we will see the destination charges,” he said.
“The CIF cost of a headless pork carcass has gone up to $3 per kilogram from $1.5 per kilogram,” Cham added.
Cham warned that given the delays in shipments, the government’s pork-tariff reduction to as low as 5 percent for in-quota volume and 15 percent for out-quota volume may not be maximized.
“Only the pre-ordered [batch] will benefit but the new orders may not, since it takes us now at least three months for new orders,” Cham explained.
Upended process
AMBALADA, who is also a director of the Philippine Association of Meat Processors Inc., warned that the current shipping and logistics problem is worsened by the challenge of sourcing raw materials for food manufacturers, like processors.
Furthermore, delays in arrival of imported goods may pose food security problems for the country, he added.
For example, meat processors are now struggling to import mechanically deboned meat of chicken since the country lost about 60 percent of its import source after the government slapped temporary blanket bans on European countries over bird flu concerns, Ambalada explained.
“This is really a perfect storm. If this won’t be eased or resolved, then we’re up for a looming major food shortage. Take, for example, processed meat products,” he said. “What will be our alternative protein source if we lose processed meat products or they hike their prices amid rising pork and chicken retail prices?”
Noted problems
IN an exclusive interview with the BusinessMirror, a staff of the Philippine Coconut Authority (PCA) said coconut oil (CNO) exporters are booking their shipments in advance—about two weeks to a month before target shipment date—as a “stop-gap” solution to the ongoing global container and vessel imbalance.
The person familiar with PCA operations pointed out that the impact of these problems were “greatly noted” in July last year when the country’s CNO exports “dropped to its lowest” at 7,863.15 metric tons (MT).
“With this problem, to be able to deliver the goods as per agreed contract, what our exporters do is to book their shipment with the shippers in advance, two weeks to a month before the target shipment date,” the person familiar with the PCA said.
The person said the PCA, an attached agency of the Department of Agriculture, disclosed that the Department of Trade and Industry is already looking into the problem and is looking to come up with a solution to mitigate the impact of the problems on one of the country’s top agricultural exports.
According to the person familiar with the PCA, the trade and industry department’s Committee on Logistics of the Export Development Council has been conducting consultation meetings with the exporters, shipping and logistics companies to minimize the impact of this problem to our exports.
“Advance booking is still the stop-gap solution at the moment,” the source at the PCA told the BusinessMirror.
Imports, exports
THE ongoing global logistical problem adds another problem to the country’s CNO exports that have been suffering from supply problems in recent years.
In fact, Philippine Statistics Authority (PSA) data showed that the total value of the country’s CNO exports last year declined by 9.1 percent to $846 million despite a rebound in prices.
A Global Agricultural Information Network (GAIN) report projected that the country’s CNO exports in market year 2021 to 2022 will continue to decline for the third straight year due to “logistical problems from importing countries as a result of the Covid-19 pandemic.”
The report noted that the country’s top markets for its CNO are Europe and the US, which have been reeling from the impact of the global shipping problems.
The GAIN report, prepared by the US Department of Agriculture’s Foreign Agricultural Service in Manila, estimated that CNO exports from October-to-September of next year would decline to 875,000 MT from 925,000 MT recorded in the previous market year.
Tight margins
PHILIPPINE banana exporters are also reeling from rising shipping costs and shipment delays, which they estimate may slash the country’s profit from the prized yellow fruit by at least 15 percent.
Pilipino Banana Growers and Exporters Association (PBGEA) said the rising shipping costs, brought about by the global shipping problem due to Covid-19-induced problems, are further “eroding” the “already tight margins” of exporters in all markets.
PBGEA Chairman Alberto F. Bacani told the—their shipping costs have increased by 15 percent to 20 percent compared to last year’s average quotations.
For example, Bacani said the cost of shipping a container of bananas to Saudi Arabia has risen to $3,000 from the usual quotation of $2,600 (about P124,879.30 at current exchange rates).
Due to this, Bacani noted that profits by the industry this year would be slashed by double-digit rates.
“You can assume the same amount of the increase in shipping costs—about 15-percent reduction,” Bacani, who is also the President and CEO of Unifrutti Tropical Philippines Inc., told the BusinessMirror.
“With market prices generally staying the same year-on-year, the rise in shipping costs have eroded the already tight margins of banana exporters in all markets,” he added.
Equally affected
WORSE, the rise in costs is coupled with shipping delays from Davao to the Middle East, with shipments arriving within 30 days to 33 days—from the usual average of 25 days, Bacani told the BusinessMirror.
He further explained that the transit delay was caused by the “continued spillover effect from the port congestions in China and Singapore that started at the end of 2020.”
The congestion, Bacani pointed out, caused feeder vessels to miss scheduled connecting dates with the intended mother vessels in Singapore and Shekou.
“This congestion has affected all shipping lines from Davao since all of them rely on the same feeder vessel service from Davao offered by CMA and RCL, meaning all banana exporters from Davao are equally affected by the delayed transit time,” he said.
The increase in freight costs has put the Philippines in a tighter corner against its rising Vietnamese and Cambodian competitors in securing market share in the growing market that is China.
“Vietnam and Cambodia, given their proximity to China, are the last affected by these increased freight costs, making their bananas even cheaper now versus Philippine bananas compared to last year,” Bacani said.
Indeed, it appears it would take a long way for the Philippines to recover to a position of strength in matters of logistics.