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A broken supply chain is a moneymaking opportunity. For who? Shipping companies

Thirty-thousand high-end snow globes are trapped in San Pedro Bay, split between two shipping containers on two ships in the idle flotilla offshore. One ship arrived in late September; the other in late October. They’ve been stuck at anchor ever since. Liz Ross, co-founder of CoolSnowGlobes, says that at this point in the season, all is lost. Her snow globes — representing $1.5 million in sales — needed to get to customers before the holidays. But Wan Hai Lines Ltd., the Taiwanese shipping corporation that owns those vessels, is making a record profit this year. So is every major ocean shipping company, trucking company and warehouse company, as consumer demand has led to a 20% jump in imports.

The supply chain, defined as the system of moving goods from factories and farms to end consumers, is tied into knots and failing to deliver. But supply chain companies, each a private entity that hopes to make as much money as possible out of the surge in consumer demand, are having their best year ever. At the moment, that means there’s little financial incentive to resolve the supply chain crisis quickly.

“Right now consumers are screaming because they don’t have the product and the price is going up,” said Christopher S. Tang, a distinguished professor at the UCLA Anderson School of Management who studies supply chains, “but the big players are quietly happy.”

This begins on the boat.

Most imports come to the U.S. in shipping containers, and just nine shipping companies control 80% of all global container shipping. Those companies have further consolidated into three major alliances — 2M, Transport High Efficiency Alliance and the Ocean Alliance — in the last decade, giving them unprecedented power in the market.

“To a certain extent they’ve become a cartel,” Tang said. “There’s not that much competition, so they can jack up the price more.”

A look at San Pedro Bay, where dozens of ships have been idling for weeks, might give the impression that these companies are under duress. How can having $100-million ships tied up at anchor be good for the bottom line?

The shipping companies’ financial reports show that they’re finding a way. A.P. Moller-Maersk, the Copenhagen-based shipping giant, is on track to make more than $16 billion in profit in 2021 — three times as much money as its previous best year ever in 2014, and the most profit ever booked by any company in Danish history. Cosco Shipping, the Shanghai-based company that competes with Maersk for the top spot in the industry, made $12.6 billion in profit from container shipping in the first nine months of 2021, and reported that its revenue had doubled since 2020, thanks to the supply chain squeeze.

Wan Hai Lines, which is not in one of the major alliances, booked $2.48 billion in profit in the first nine months of 2021, 19 times what it made in the same period last year. Taken as a whole, the ocean shipping industry is on track to make more profit in 2021 than it has in the last decade.

The main source of this skyrocketing revenue is freight fees. In 2019, shipping a container from China to the West Coast cost less than $2,000, on average. At the height of the logistics crunch this summer, rates soared above $20,000 for that same container, before falling below $15,000 in the latter half of November. Demand went up, supply went down as backlogs grew, and prices surged.

Customers such as Liz Ross pay the shipping companies upfront. In previous years, those companies had a financial incentive to unload their ships as quickly as possible to free up capacity for more voyages. But the eight- to tenfold increase in prices means that a carrier can double its revenue even at 20% capacity. With that amount of money coming in, idle ships at ports such as those in Los Angeles and Long Beach barely scratch the bottom line — and in fact might prove good for business, if they mean that the companies can keep prices high, Tang said.

Read on and thanks to Sam Dean, business reporter for the Los Angeles Times for the article:

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