A Threat for Christmastime? Container Shortage Could Overshadow Holidays in LatAm

Bogota, Colombia — last year was left an atypical Christmas for families, not only in Colombia, but in Latin America and the world: restrictions, lockdowns, and fears made last year’s celebration a swing of emotions.

That is why the Christmas holidays of 2021 are awaited by many families. The virus is still present but its incidence is very low compared to last year’s levels, the vaccination plan is advancing and the economy is accelerating even more than what was budgeted.

In theory, the conditions are in place for a season of revenge. Households have more resources, the pandemic has taken a break, and the authorities have relaxed restrictions to facilitate economic activity. In August alone, household spending grew 9.9% to 65 trillion Colombian pesos ($COL).

Logistical Grinch

Despite the ideal conditions to have a family Christmas, with gifts for children and adults, and full of color, the dynamics of international trade threatens that gifts, decorations and all the paraphernalia of the season will not arrive on time.

The collapse of international trade in 2020 reduced the availability of containers to transport goods, ships and, in addition, increased the cost of freight to transport from one port to another.

According to Compas, a Colombian company that offers logistics services to cargo ships, “there has been an increase in sea freight rates for the transport of goods in containers. A container that was contracted for US$5,000 from China to Buenaventura may now be costing more than US$18,000″.

This increase is a product of the delay in the attention of ships in the largest ports of China, which makes cargo and containers stagnant and increase demand from importers and exporters, just now, when the economies are reviving after having vaccinated the population.

Javier Diaz, president of the National Association of Exporters of Colombia (Analdex) assures that “we still do not see a normalization of the freight situation. Some shipping companies have said that they will not continue to increase, but they have frozen the prices above. What one hopes is that we return to normality, but for now we expect to continue the shortage of containers, the priority to trade between China and Europe and China and the United States.

And for the union executive, the weight of Latin America in the shipping business eliminates the possibility of the region being able to compete for containers against Europe and the United States.

“We are marginal. And we understand this because for shipping companies Latin America is 4% of their business. We don’t see that being solved quickly. Some analysts talk about seeing an improvement in the second quarter of next year, but we don’t see any signs that this will improve”.

Diaz adds that logistical and container availability difficulties are greatly affecting world trade and are making products more expensive around the world.

Diaz is clear, and says that the supply for the Christmas season will be lower than what the country is used to. “I see it with a lot of problems because what we are seeing is that there is not the required number of frequencies. Many of the products that are required for the Christmas season are not going to arrive because there is not the availability either of ship or containers. Those products are not going to arrive on time and there are many products that must necessarily arrive on time or they are no good, such as Christmas arrangements and lights. All these kinds of things, if they do not arrive on time, they simply did not arrive and that is what we are seeing, that there will not be the supply of products as in previous years”.

For those involved in international trade, it is clear that supply chains continue to be traumatized. “From China to the rest of the world, India, Asia Pacific, and the United States, we have not been able to recover. We have recovered compared to what we had a year ago, but other complications have appeared,” says Julio César Herrera, CEO of Global Energy and Production Company.

“We have for example an energy crisis in China, it’s not just the containerships, but the lack of gas in China and the very high prices of coal. That has led to production in factories in China, factories ranging from cups and spoons to iPhones being curtailed,” explains Herrera.

On what is coming for the holiday season, Herrera maintains that “we are not going to have the supply of other years. The post-pandemic demand will not be sufficient due to the traumas of the supply chains; the energy crisis has added complications to the world, and in particular, to everything produced in China”.

Costs at stake

According to the consumer analysis and consulting firm Raddar, spending in Colombia associated with the Christmas season is between $COL18 billion and $COL24 billion.

The 2020 data showed a 14% decrease in spending by Colombian households during the Christmas season. The economic impact on families was the main reason for this reduction.

According to the firm, almost a quarter of monthly spending in December corresponds to expenses associated with the season. Raddar’s indicators show that household spending in 2020 was $COL83.2 billion, and $COL20.8 billion of this was spending associated with the holiday season.

Likewise, the consulting firm detailed that spending in 2020 was $COL1.4 million on average per household. It decreased compared to the 2019 figure, but was in line with that of 2018.

Products that may be affected

For several years now, the countries of the region have been looking to Asia Pacific for new allies for their trade activities. Colombia has been no exception. China has established itself as one of the destinations from which more merchandise arrives and to which more merchandise goes.

At the end of July, US$7,522 million in goods and services arrived in Colombia from China, the main import destination.

According to the National Administrative Department of Statistics (DANE by their Spanish acronym), boilers, machinery and parts in US$1,361 million arrived from China up to June.

However, what was most imported from there were electrical recording or imaging devices and equipment. Products in this category represented purchases of US$1,924 million. This category also includes destinations such as Taiwan, South Korea, Malaysia and Vietnam.

Vehicles, it´s parts and accessories are another category in which Asian countries are among the protagonists. China, Japan, South Korea and India are among the largest sellers to Colombia.

Other categories such as photography, cinematography, pharmaceuticals and footwear are among the products that Colombia buys most from China and other Asian countries.

But the effects are two-way. The problems for traders are not exclusive to those who will have no supply due to the impossibility of importing merchandise, but exporters who market their products in those countries will also find it difficult to send them.

Coffee growers will feel the impact the most. Coffee sales to Asia amount to US$308 million, and lead the offer of Colombian products in that region.

Japan, South Korea and China are the main buyers of Colombian merchandise, which also includes waste and scrap of metallic minerals (key for the steel industry), beef, flowers, wood (furniture), leather, electrical products and fresh fruit.

What has inflation been like?

Given the difficulty for international trade and the low relevance of Latin America for shipping companies in the world, prices are expected to be high during the December season.

Monthly inflation for December 2020 was 0.38%, which was above that of 2019, when it was 0.26%, and reflected the beginning of the economic reactivation.

In 2018, for December, it was 0.30%, and for 2017 it was 0.38%. A year earlier in 2016 prices for the last month of the year increased 0.42%, while in the same period of 2015 the rise was 0.62%.

What the industry expects for now is that international trade difficulties will continue, so December inflation this year could be particularly high, as households experiencing a better financial situation will want to consume what the pandemic deprived them of.