Impact of the chaos in global shipping on Stone industry

Anil Taneja,

anil.litosweb@gmail.com

 

The pandemic has drastically changed the business world in just about every industry, some in predictable ways, others in the most unexpected manner.

Overall, though, the stone industry has suffered relatively lightly when compared to so many other industries. 2021 was widely expected to be the year of return to some kind of normality.As of end of March 2021, most stone companies almost  everywhere in the world are saying they have enough orders to keep them busy, or more than last year, even if the medium term prospects remain somewhat unclear.

But, what was totally unexpected and has come as a big shock is a serious bottleneck in the logistics. The biggest problem today is getting the stone from the factory to the buyer who is located in distant lands reached only by sea. We have always automatically taken for granted that if a customer places an order, a few days or weeks later a truck would arrive at the factory to load the container of stone and a few weeks later, it would be in the client's warehouses or on the project site, no matter in which continent is the customer located.

This most basic assumption has been cruelly shattered in the last few months. After a total lockdown which the world went through, the fact is that demand in many industries and consumer products recovered sharply, construction and renovation activity being among them, and suddenly the stone quarries, processing factories and fabricators were pleasantly surprised to receive orders from their regular customers as if normality was returning once again.No travelling had been needed either to close the sales, inspect the blocks or slabs.

But this new problem has suddenly appeared out of no where and aggravated in recent weeks, and it is a world wide phenomenon. The exporters everywhere are finding out that the 20 foot container which they always took for granted as being always available on demand,  is being one of the hardest thing to get hold of. Moreoever, even when available after having to wait for weeks, the shipping cost have risen dramatically. Below are some of the typical shipping routes in the natural stone industry, the shipping cost per container before the pandemic as compared to now, end of March 2021.

 

TYPICAL FREIGHT RATES (US$)

ROUTE

BEFORE PANDEMIC

MARCH 2021

Alexandria to Dubai

380

625

Antalya to Alexandria

300

700

Chennai to New York

less 2000

2800

Chennai to Sydney

2000

3000

Helsinki to Xiamen

450-500

1100-1500

Istanbul to Xiamen

600-1200

more 2000

Jakarta to Valencia

1000-1200

3000-3500

Karachi to Port Said

850

2150

La Spezia to Nava Seva

850-900

1350

Shanghai to Valencia

1000

4000

Vitoria (Brazil) to Valencia

700

3200-3500

Vigo to Dublin

800

3000

Xiamen to Barcelona

800-1000

4300

Xiamen to Veracruz

1800

11000

 

PAY MORE, GET CONTAINERS EARLIER

Given the shortage of containers, in many places stone companies are discovering that availability depends on the price they are willing to pay. The higher the price the customer is willing to pay, lesser is the waiting period. An auction, in other words- and this on routes which are the busy ones with traffic. In other ports of secondary importance, no matter what the price a buyer is willing to pay, very often no commitment is made even then by the freight forwarders, not even 2 months ahead.

Sometimes the prices for containers is so high the buyers are not willing to accept the rates, so the exporter is stuck with the stone, in the quarrry or the factory.

The small importer of stone, the one who places an order every 3 or 4 months from a distant supplier, cannot usually afford long delays and higher prices- that kind of company ends up looking for local suppliers, if that alternative is available. In USA, given the strength of the market and increasing demand, the priority for the wholesaler is to have the materials in stock- so the importers are, by and large, absorbing the increased freight cost and are usually able to pass it on to the buyers.

In other markets, where demand has improved but there is still a lot of uncertainty and severe price competition, the importer finds himself forced to absorb the increased cost.

 

WHY IS THERE SHORTAGE OF CONTAINERS ?

An article published recently in the New York Times (https://www.nytimes.com/2021/03/06/business/global-shipping.html)  expands on this problem in detail. Essentially, the reason is a sharp recovery in global trade after the first lockdown in the world middle of last year, the fact there are less workers at the ports to load and unload, and less truck drivers to take the containers inland and bring them back. These are the main factors creating the disruptions in a very complex and sophisticated global logistics system.

 

EFFECT ON ONGOING PROJECTS

The situation is especially damaging for stone companies that are supplying stone for projects in a country where the transport is by sea. Normally a project is awarded at a fixed price and with tight deadlines with the price including the transport costs till site. Margins can also be very tight in big projects. An increase of even a few hundred dollars, let alone a thousand plus in the cost of transport per container often means the entire profitability is destroyed for the stone supplier of the project. Delays in supplying stone in an ongoing project with deadlines and fines for delays only means more headaches.

 

INCREASED NEED FOR WORKING CAPITAL

With huge delays, from 1 to 3 months, between stone processed and ready for shipping, and arrival at destination, there is tremendous stress on the cash position of both the exporters and buyers. Same is also true for blocks exporters in different countries. Delays in receiving payments for dozens of containers for a typical medium sized seller means a lot of cash is locked up. As it is, the pandemic caused huge damage to the balance sheets of most companies and companies  almost everywhere in the world. This additional problem makes their financial situation even worse, forcing companies to extend their already well extended credit lines. For the small and even the medium sized importer, often living hand to mouth, such delays often make importing unviable, and they are dangerously low on stocks.

 

RISING COSTS OF SUPPLIES

Side by side of the stone industry lies a huge ancillery one,  consisting of all kinds of machinery, tools, resins, etc. Most of these goods are now manufactured in Asian countries, especially China. Even when some of the machines etc are made elsewhere, the inputs that go into their manufacture, steel, for example, often comes from Asia. The sharply rising shipping costs means cost of supplies are also increasing for the stone quarries and factories. Delays in supplies is also a serious issue.

 

A SWITCH TO LOCALLY AVAILABLE MATERIALS?

With the high costs and delays in receiving consignments, are the architects, interior designers and wholesalers shifting towards specifying stone available locally or through land transport?

The reality is we have not yet reached this stage-  but the security of supply could well become a predominant criteria very soon if the logistics issue prevails for some more time. For now all attention has focused on the pandemic and the delays and related problems, decisions on the building material have not been made for that many projects. But as the vaccination process speeds up, as everyone hopes for and expect, decision time for specifying natural stone or whatever, will arrive soon.

Some wholesalers in USA have concluded that since there is no real alternative( aesthetically speaking) for materials from Brazil and India, for example, they prefer to wait for more time and pay more too.  The same calculation may not be valid for architects who work with strict deadlines and budgets in their projects.

For now Chinese suppliers of stone, usually their lowest price being a key argument in selling, are suffering the most- an additional transport cost of 8$ to 12$ / sqm no longer makes them them competitive in the market. But stone exporters from other countries may soon find out their materials are not being specified if the situation does not return to normal soon.

 

WHERE IS THE PROBLEM MOST SEVERE?

For now it is the traffic from East to West that seems to be the most affected- the companies from China, the biggest manufacturer of just about everything, being the most severely affected. The traffic from South to North, from Brazil to USA, for example, has still been relatively unaffected till now.

Within the European continental landmass transport of stones by trucks is more common and so the transport of stone by ship does have an alternative in most cases. Transport costs by truck are somewhat higher, but that is mostly due to the higher cost of oil in recent months.

 

WHEN WILL THIS CRISIS END?

The harsh reality is, nobody knows. Just adding more ships is obviously not possible, and even manufacturing more containers( till now are made mostly in China) takes time. In terms of priorities among all the goods being transported in the global trade, natural stone is well down the ranking order and its companies do not have the same bargaining power as other industries.

One day, yes, and hopefully soon, this unexpected crucial bottleneck will be over, this transport related crisis is threatening the  very recovery of the shaky world economy. Till then, one more time, the natural stone industry has no alternative  but to be patient and wait it out.

 

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