As the world’s largest cargo ships rush to the United States with all the clothes, furniture, toys and electronics that American consumers might want, Aditya Awtani is feeling neglected.
‘Last on the rung’: Africa deals with fallout from a ‘Made in the USA’ supply chain crisis
Shipping lines flock to Asia-to-U.S. trade lanes at expense of many developing nations.
Awtani’s problems getting raw materials into Kenya are mirrored by his troubles getting Mega shirts, pants and children’s clothing out of the country. Shipping containers are scarce, since carriers often hurry them back to China, making it hard to plan and easy to miss scheduled deliveries.
The shipping headaches, along with freight costs that have nearly quadrupled, are carving a hole in his profits, straining his relations with customers and threatening his 5,800 employees’ jobs.
“There are days when I walk into the factory and I see workers with their arms folded because the containers have not come, which is a very depressing sight to see,” Awtani said.
With U.S. retailers willing to pay almost any price to get their goods to American shores in time for the holidays, ocean carriers have redeployed container ships from the developing world to the more lucrative Asia-to-United States trade lanes, where rates for some shipments this fall were 15 times pre-pandemic levels, according to the Freightos index.
That’s helped fill American store shelves — and carriers’ coffers — but it has battered many African shippers, according to interviews with more than 30 maritime analysts, shippers, freight forwarders and cargo carriers in the United States, Africa and elsewhere.
Already lagging in coronavirus vaccinations, Africa risks becoming collateral damage in the supply wars. The International Monetary Fund says the 45 nations of sub-Saharan Africa are mired in the slowest economic recovery of any region, with supply chain disruptions helping fuel inflation at roughly twice its pre-pandemic level.
“Africa, sadly, I can’t think of any other continent that is last on the rung. Africa will be the last to come out of this,” Awtani said.
African shippers’ struggles have their roots in the seaborne traffic jam off the ports of Los Angeles and Long Beach, Calif. With American consumers on a year-long shopping binge, record amounts of cargo are pouring into the United States, straining supply lines and sending freight costs soaring.
The resulting port congestion means it takes longer for each cargo ship, some carrying nearly 18,000 shipping containers, to make the round trip between China and the United States’ West Coast.
Instead of pulling directly into an unloading berth, ships now wait at anchor in the California sunshine for two weeks or more. Just to maintain the pre-pandemic frequency of service on a given route, such as Shanghai to Los Angeles, ocean carriers need to use more ships.
But at a time when more ships are needed, Africa is seeing fewer, according to the United Nations Conference on Trade and Development (UNCTAD), which tracks worldwide port calls by all types of vessels.
Starting this summer, cargo carriers redeployed shipping capacity to keep up with surging trans-Pacific demand. Tonnage devoted to carrying goods from ports in countries such as China, Vietnam and Thailand to North America rose by 17 percent over the past year, according to Alphaliner, an information and research firm.
As carriers devoted more resources to delivering Asian goods to Americans, shipping tonnage assigned to serve African ports fell by 10 percent, Alphaliner said, with the sharpest decline occurring in the number of larger vessels. Mediterranean Shipping Company, for example, withdrew ships capable of carrying 13,000 20-foot containers apiece from its African routes and moved them to the Pacific.
African nations, including Kenya, Guinea, Angola and Namibia, also lost direct connections to some foreign countries, leaving their shippers reliant upon more expensive services that connect through a third port.
“You don’t want a problem in one region to be global and yet this is what we have been experiencing,” said Antonella Teodoro, a transport economist at MDS Transmodal, a consultancy based in the United Kingdom. “The global supply chain problem actually is not global; it’s the U.S. … American consumers are consuming more.”
From the outset of the pandemic, the supply chain crisis has been easier on the big and wealthy than the small and poor. For instance, many large companies in the United States have been better able to cope with supply challenges than their smaller rivals, and overall, rich countries are navigating the disruptions more easily than developing countries.
“The rich countries are the least impacted,” said Frank Appel, CEO of Deutsche Post DHL Group. “We see delays in getting some products. It’s not that we don’t get the products.”
David Malpass, president of the World Bank, this fall said per-person income was growing 10 times as fast in the advanced economies as in the developing world, where the economic outlook is “grim.”
Africa’s place on the periphery of global production makes it a lower priority for the world’s cargo carriers. In Kenya, manufacturers are “highly vulnerable to global supply-chain disruptions and external shocks,” due to their dependence upon foreign raw materials, a September study by KPMG and the Kenya Association of Manufacturers concluded.
Unreliable shipping links forced at least three companies in recent months to close or to interrupt work, including a local maker of chocolate bars that has repeatedly idled its factory for a week or two after struggling to obtain consistent shipments of glucose syrup from India, according to Phyllis Wakiaga, KAM’s chief executive.
Shifting vessels to meet demand is nothing new. But after a decade of surplus shipping capacity, the pandemic recovery means global carriers are effectively presiding over a zero-sum situation. Adding capacity on one route inevitably disadvantages shippers on another.
“Redeployment of tonnage never led to shortages,” Jan Tiedemann, senior shipping line and port analyst for Alphaliner, said. “The difference this time around is the market is sold out. There’s no more ships.”
The number of container ships calling at African ports fell 2 percent during the first half of this year compared to the same period in 2019, according to UNCTAD.
But that figure masks differences among regions and vessel sizes.
Visits to ports in North Africa, which operate as regional hubs, actually rose by 9 percent in the first half of this year while East African port calls dropped 26 percent, according to UNCTAD, which tracks only vessels that carry 3,000 twenty-foot equivalent units (TEU) or more.
Including the smaller ships that are more common in many parts of Africa, Mombasa is still receiving as many vessels as it was two years ago, according to the Kenya Ports Authority, a state corporation.
Yet ultimately, the number of vessels calling at a port is not as important economically as the amount of cargo moving through it.
On a recent weekday, the Mombasa facility, which traces its heritage as a trading center to the 1700s, displayed none of the congestion that has afflicted ports in the United States, Europe and Asia. Several cranes were idle. Empty berths awaited container ships. And large swaths of the yard stood vacant.
During the third quarter, the port handled 7 percent fewer containers than it did during the same period in 2019, KPA said.
Inside Mega Garment’s Mombasa warehouse, cardboard boxes destined for U.S. customers are stacked 12 feet high. Delays in obtaining fabric, zippers and buttons from factories in China, Thailand and Taiwan have made Mega late with some deliveries, forcing Awtani to sell goods that have missed their seasonal window at a deep discount.
“Every process is linked to when the raw material comes to the factory,” he said. “A month in our business is a lot of time. That’s when seasons change, literally … If we miss, say, a Christmas season or a back-to-school season, what do you do with that merchandise? I can’t sell winter jackets in May.”
Making matters worse, Kenya’s tax system, which imposes a 16 percent value-added tax (VAT) on the value of imports, including freight costs, means his customs fees rise in lockstep with his shipping costs. So far this year, the one-two punch has cost him around $518,000, eating deep into his profit margins.
The chronic disruptions are chilling Mega’s growth. Awtani often uses trucks to import some Ethiopian fabrics because the week-long, 1,000-mile land journey is more predictable than the less expensive sea route. If shipping were more reliable, Awtani said, he would increase his weekly container order by 25 percent.
Another apparel maker, Hela Clothing, which relied on a weekly container ship to send Asian fabrics and threads from its home base in Colombo, Sri Lanka, to Mombasa, went an entire month this fall without seeing a vessel, according to Nevil Dayananda, the company’s deputy general manager.
Vessels that originate in Shanghai, able to hold almost 30,000 TEUs, are already full when they reach Colombo. So they skip the port, he said.
“They view the priority as USA for cargo,” added Dayananda, whose factories supply U.S. brands including Victoria’s Secret.
GridX Africa, after suffering months-long delays in getting seaborne deliveries of Chinese parts for its solar power installations, began using more expensive airfreight to bring in European alternatives. The solar power company also has been forced to truck its batteries to Kenya from a new supplier in South Africa, a journey of more than 2,500 miles that crosses five national borders, rather than continue importing Chinese models.
“You have fewer vessels coming to the Eastern African ports. You have smaller vessels coming to the Eastern Africa ports,” said Philipo Mollel, GridX project coordinator. “You find it more difficult to get vessels and to find containers because now most containers are stuck at a port in the U.S. or Europe.”
Snarled supply lines have been good for cargo carriers. Six of the largest publicly traded shipping lines made more than $20.1 billion in profits during the 90 days that ended Sept. 30. Maersk, the industry’s largest player, earned $5.4 billion during the quarter, more than Tesla and Walmart combined.
For competitive reasons, most carriers provide little public detail about specific deployment decisions.
In late October, Maersk said it was boosting capacity on its Asia-to-U.S. routes by 40 percent by redeploying ships. Earlier, Hapag-Lloyd CEO Rolf Habben Jansen told reporters that the German carrier had shifted a low “double-digit number of ships” to the trans-Pacific by cutting the frequency of service in the Mediterranean and Caribbean.
“It hasn’t added a lot of productive capacity because routes are taking a lot longer,” Habben Jansen said. “If a service needed six ships, now it needs eight. So these ships are there to try to keep up capacity more than to add to it.”
Indeed, one out of every eight container ships in the global fleet is unavailable because it is stuck in or near one of the world’s ports, according to Sea Intelligence, a Copenhagen-based consultancy. That explains why ships appear in port as scheduled only one-third of the time, down from almost 80 percent two years ago.
Most African ports lack the depth and facilities to handle the ultra-large vessels that shuttle between California and Asia. So rather than switch vessels from Africa to the trans-Pacific, carriers have reduced the capacity available to African shippers by assigning smaller ships to ports like Mombasa. For one service by the French carrier CMA CGM that stops at the Kenyan docks, the average vessel capacity has fallen by 22 percent since the beginning of 2020, according to Teodoro.
Smaller cargo carriers that specialize in intra-Asian transport, such as Xpress Feeders of Singapore, also have shifted some smaller vessels to the booming trans-Pacific, according to Tiedemann, setting in motion schedule changes that ripple around the globe.
“Carriers have redeployed ships according to where rates are the highest,” said Tiedemann. “It’s a big game of musical chairs.”
Two-thirds of the roughly 70 vessels stuck outside the top U.S. import gateway in Southern California belong to those smaller carriers, according to Gene Seroka, executive director of the port of Los Angeles.
Many of the new players sail from China without a reservation at a L.A. terminal and thus go to the end of the floating queue. Some are ships that freight forwarders charter for big retailers such as Walmart or Home Depot.
Like many African economies, Kenya imports several times as many containers as it exports. Traditionally, that meant there were plenty of empties available for the country’s exporters to ship coffee, tea and apparel to foreign customers.
But carriers are rushing containers back to Asia as fast as possible to capitalize on the profit opportunities there. As a result, some impatient African shippers are switching to more expensive airfreight for high-value goods or less efficient bulk shipments for goods such as scrap metal, dog food or coffee.
“With container shortages, they do tend to give more preference to the U.S. and then we kind of get left behind,” said Raj Bains, chief executive of Kim Fay, a Nairobi-based manufacturer of household goods such as Huggies diapers and Duracell batteries.
The supply chain disruptions are also making themselves felt on Nairobi’s Biashara Street, where shopkeepers decry high freight costs, shipping delays and the resultant price increases.
Kenya’s inflation rate has topped 6 percent for the past five months, the longest it’s been above that mark in four years, according to the Central Bank of Kenya.
Sarvesh Shah, who owns Haria Stamp Shop with his brother Rahul, is waiting until shipping costs dip before placing new orders with his Chinese suppliers. The 80-year old business, which relies on Chinese factories for most of its Kenyan-themed fabrics, baseball caps, key holders and refrigerator magnets, has been selling off inventory that accumulated during the pandemic slowdown last year.
Shah checks almost every day to see if he can afford to replenish his supplies.
“I speak to my local shipping agent to find out when he thinks prices of containers will start going down so we can place the order,” says Shah. “We’re just waiting for freight costs to come down by 30 percent from where they are now.”
Lynch reported from Washington, D.C., and Wadekar reported from Nairobi and Mombasa, Kenya.