How the hype for toilet paper led to a shortage of electronics
It all started in the spring of 2020, when the world was confronted with COVID-19. After the first reports of an impending pandemic and a possible long-term lockdown, the whole world was swept by a “toilet hysteria”, which was expressed in the purchase of an atypically large amount of toilet paper. Someone made fun of a video from the United States where men and women fought over packages with valuable goods, someone silently bought a couple of extra rolls or packaging for future use. The only question is that the explosive growth in demand for toilet paper and other hygiene products in the United States, which the population swept off the shelves in any quantity, led to a large-scale crisis in world cargo transportation.
Lockdown China in March 2020
In fact, the panic among US residents about having to walk around with a dirty bottom was not entirely unfounded. One of the catalysts for the hype around toilet paper was not only Internet trolls, but also reports from China about the quarantine of most of its provinces in March 2020.
We are accustomed to the fact that, sitting on 1/4 of the world’s forest reserves, we always have access to the products of the pulp and paper industry. Yes, the quality of domestic producers is not always high, but if desired, Russia can provide the entire Eurasian continent with paper or raw materials for its production at the expense of Siberian timber reserves. The situation is more complicated in the United States: the country is actively importing paper products.
The chain looks like this. Brazil, the world’s largest exporter of bulk pulp, loads semi-finished products onto ships that transport papermaking raw materials to Southeast Asia, mainly China. There, cellulose is processed and finished goods, and they, loaded onto containers, are sent along the Pacific route to North America, to the final consumer.
The announcement of the closure of China led to the accumulation of a significant portion of containers for sea freight in the region, which caused a disruption in the supply chain of goods that were not even tied to that country. However, rather quickly, China took control of the situation and opened trade, and the accumulated goods poured into the West, into the United States, languishing from the shortage of various products. Including a huge amount of toilet paper floated to the New World, which began to frankly run out in the United States.
Reversal of the situation
One-time delivery of a huge amount of goods to the United States from Southeast Asia led to the fact that a large number of ships arrived at the ports of the country with an even larger number of containers on board. World trade is arranged in such a way that the vessel will wait for reloading only if it is beneficial for the operator to hold the ship in the port and wait until the containers are freed from goods or new ones arrive for loading. Since there was a shortage of goods in the United States, ships from China arrived for shipment and left again to Asia, already empty. It was much more profitable than waiting for the delivery of anything from the States.
As a result, containers loaded with toilet paper, septic tanks, napkins and other goods, which were actively sold out a year ago, remained standing on the shore.
After a while, the lockdown was announced in the United States, and the situation became diametrically opposite: tens of thousands of 40-foot containers, which are the basis of sea freight, were stuck in the United States. There is nothing to transport in them, and it is also impossible to enter the port itself.
Domino effect
According to experts, many carriers deliberately refuse to return empty containers even now, a year later, when their shortage has become an obvious problem. For merchants transporting cargo between China and the United States, it is more profitable to remove containers from other routes than to incur the additional costs of waiting and transhipment in United States seaports. As a result, the logistical imbalance, which arose due to the rush of demand in the United States more than a year ago, led to a disruption in the entire world trade: containers are removed from European and other directions in favor of working in the most profitable market.
“There are about 180 million containers in the world, but they are all in the wrong place.”– Chief Executive Officer of the logistics company Redwood Logistics Mark Yeager
In total, as of April 2021, there was a 40% imbalance in the United States in terms of inbound and outbound freight containers.
How it affected the electronics market
The container shipping crisis has had the most tangible effect on the electrical goods market, which was also superimposed on the semiconductor crisis. After all, it is the electronics manufacturing that is the most global and sensitive to the supply chain segment. And yes, the price of microchips was influenced not only by the growth in demand, but also by the hype around toilet paper in the United States in the spring of 2020.
But the crisis of containers leads to an increase in the cost of not only video cards, microchips and other products. For example, large household appliances can rise in price significantly.
If before the COVID-19 pandemic the cost of transportation from China to Europe by sea was about $ 1,500, now it has jumped to $ 9,000 and more for a 40-foot container. In the case of transportation of the same refrigerators, of which no more than 60-70 pieces can fit into a container, we are faced with an increase in the cost of each unit of goods by ~ $ 100. The same applies to any dimensional equipment and other products that were previously transported by sea.
In addition, the European direction is not the most profitable for suppliers from China, and when choosing between freight on the European or American direction, preference is given to the latter. The Pacific route is banally cheaper by almost a third, which, given the equal cost of the supplied goods, leads to lower costs.
Closed ports of China
The cost of computer components and equipment already makes you want to cry, but the situation may also worsen. In Guangdong province, a new outbreak of coronavirus infection was recorded, which led to the closure of the port from 25 to 31 May and the formation of a queue for loading. This affected the operation of the Yantian terminal in the port of Shenzhen (turnover of 13.3 million containers per year), and the nearest terminals – Shekou in Shenzhen and Nansha in Guangzhou (15.6 million containers).
The ports of Shenzhen and Guangzhou are in the third and fifth place among the cities with the largest container ports in the world, and a huge amount of microelectronics and electrical goods manufactured in China pass through them.
Now the ports have been partially opened, they operate at 30% of their capacity, and the queue for loading has already stretched out for almost a week.
“We are experiencing difficulties with shipment from the ports of Shekou and Nansha, because in addition to the availability of free equipment at the line, it is also necessary to find a car with a driver who will have a negative PCR test, and also to check whether the line does not miss a ship call,” the head told the press. of Itella Intermodal Transportation Department in Russia Yulia Nikitina.
Perspectives
With all the huge demand of world trade for containers “here and now”, suppliers are in no hurry to invest in their production.
First, almost all containers in the world are manufactured in China, and for this, raw materials from other regions must be delivered to the factories of the Middle Kingdom, most often by sea from Australia, which actively trades ore and metals with Asia. But for this, it is necessary to remove the same scarce containers from the routes or send bulk ships that carry much less cargo than if it was done by the container type.
Second, the containers that are stuck in the United States will not go anywhere. According to logisticians, sooner or later the balance will be restored and with increased production of 40-foot and other containers, in the future the market may face an excess of them, which will result in direct financial losses for those who ordered containers and paid for their production now.
Third, they are in no hurry to solve the problem of containers, because only the end consumer pays for this banquet, who feels a shortage of goods and is ready to purchase at an increased cost.
Microelectronics manufacturers adhere to approximately the same logic, which are in no hurry to open new factories for the production of microchips, fearing a collapse in demand in a few years, when the new lines are fully operational. The only exception is Samsung and TSMC, which are ready to invest billions for the future.
Ironic afterword
There is one caveat to the entire container shipping situation described above: the United States may actually have a shortage of toilet paper.
Only the reason for this will not be the apocalypse on the streets of American cities, but a failure in the supply of cellulose from Brazil to China. Now it is more profitable for logistics companies to operate in the US and European markets, chartering containers four to five times more expensive than before. Bulk cargo from South America is not so profitable, so this logistics line is under threat. And there will be no raw materials for factories in China – there will be no paper products in the United States, unhealthy and unreasonable demand for which has launched this entire chain.
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