Read time: 5 minutes
Introduction
In the ever-evolving world of global trade, the past year has been particularly challenging for supply chains. A confluence of geopolitical tensions, environmental changes and logistical bottlenecks has significantly delayed the movement of goods. These delays have not only disrupted schedules but also tied up substantial amounts of capital, creating financial strain for both buyers and sellers.
In this article, we will explore the key events contributing to these delays and discuss various financing techniques that can help unlock capital tied up in goods in transit.
Supply chain delays: A perfect storm
1. Red Sea conflicts
One of the most significant disruptions has been the increased frequency of attacks in the Red Sea by the Houthi militia. These attacks have expanded the risk zone, forcing vessels traveling from Asia to the Suez Canal to take a much longer route around the southern tip of Africa. This detour adds considerable time to the voyage, delaying the arrival of goods in Europe and tying up capital for extended periods.
2. Port congestion
Aging port infrastructure, combined with a surge in e-commerce, has led to severe port congestion. Ships are often left waiting for weeks to unload their cargo, exacerbating delays. The increased demand for cargo handling has outpaced the capacity of many ports, leading to significant backlogs and inefficiencies.
3. Climate change
Climate change has introduced a new layer of unpredictability to maritime logistics. Rising sea levels and more frequent severe weather events have forced ships to deviate from their usual routes or anchor until conditions improve. These disruptions not only delay shipments but also increase operational costs.
4. Labor shortages
The COVID-19 pandemic has had a lasting impact on the labor market, particularly in the logistics sector. A decline in port workers, coupled with strikes, has left ports struggling to efficiently unload cargo. The resulting delays have further strained supply chains and tied up capital in goods in transit.
5. Slow steaming regulations
In an effort to conserve fuel and reduce carbon emissions, slow steaming regulations have been introduced. While beneficial for the environment, these regulations have increased transit times, adding to the delays already caused by other factors.
6. Shipping container shortages
The pandemic-induced shutdowns created an imbalance in the distribution of shipping containers. Subsequent issues, such as Red Sea conflicts, port congestion and an increase in demand for sea transport, have made it difficult to resolve this imbalance. The struggle to find shipping containers and the resulting surge in container prices have further contributed to delays in shipping transit times.
- Disruptions to supply chains have led to longer journey times for shipments of goods
- As a result, buyers and sellers are facing capital being tied up in goods for longer periods
- Buyers and sellers can use a number of trade finance solutions to unlock this capital