Shipping Delays and Increased prices

Just when we think things are starting to return to normal, here come more challenges. I hate to be the harbinger of doom, but better I give you the heads up instead of letting you know after the fact.

Have you heard about the butterfly effect? The butterfly effect is a term created by Edward Lorenz, a meteorologist, in the 1960s. The idea is that vast impacts can occur, starting with something tiny. The most common analogy is that a butterfly flaps its wings, resulting in a typhoon. With the world being a global economy, an event on the other side (a butterfly flap, although inarguably larger) will significantly impact Mexico. It will affect product supply, delay deliveries, and increase the costs of goods we pay at stores.

Shanghai is one of the world's large-port megacities because of its high volume of port traffic and huge population. There are only four megacities in the world that have this designation. For an idea of size, Shanghai's international port covers an area of over 3500 square kilometers. Approximately 2,000 container ships depart from this port monthly. There are anywhere from 10,000 to 20,000 twenty-foot containers onboard each vessel. If you lined up each container on a larger ship, end to end, it would be the same as a train that is 44 miles long!

On many of these ships are small items that are components manufactured in China. Examples include electronic pieces, hydraulic parts, small metal parts, fabrics, and computer chips, to name just a few. Manufacturers in Mexico (plus Canada and U.S.) purchase these items and then use them to assemble their products in their plants. Some retailers in Mexico (and Canada and the U.S.) buy directly from China and import a container full of items to resell.

Right now, the city of Shanghai is in lockdown as part of President Xi Jinping's zero-COVID policy. The worst virus outbreak to date is happening in Shanghai. Approximately 26 million people are currently locked in their homes and have been for weeks. The port itself has been completely closed since March 28, 2022.

Experts in the global supply chain industry advise manufacturers and retailers to prepare for the impact. One in five container ships is already stuck at a port before adding this issue. Once the government lifts the lockdown in Shanghai, there will be massive congestion at ports worldwide. The costs will increase as companies scramble to get their components or whole products, and it will take months for the items to get through the congestion at the ports and import offices. At the same time, the demand for trucks to carry the items from port to manufacturer or end location will be huge, causing more delays and increased costs. The freight cost for just one container from China to the U.S. this year, carrying components to a manufacturing plant in Mexico, went from USD 5900 last year to USD 15,764.

Whenever there is a problem at an international port, especially a megacity, the end customer pays more for the item. Financial experts predict an extended period of high inflation due to this supply shock to the global economy.

Regardless of where you purchase your furniture for your home, locally in the Banderas Bay Area or Guadalajara/Tonala, and whether you are buying from a local carpenter or a retailer, everyone will pay more due to a butterfly in Shanghai flapping its wings.

New condo? Buy your furniture now before the prices increase in Mexico and we will store it for you at no charge until your condo is ready. Contact us for details. Email furniture@solutionsmexico.com or send a Whatsapp message to +52 322 136 5156. Our stores are open to serve you – Romantic Zone in PV (363A Constitucion just off of Basilio Badillo) and Bucerias (Heroes de Nacozari 126).