Transportation challenges: adding to sugar prices

As highlighted in our recent global sugar market report, sugar prices have increased from 13 c/lb in October to 17 c/lb today. These rises have been brought about by several factors, including growing global and domestic transportation costs. Here, we break these transit challenges down into their components and explain how they are impacting sugar prices.

Port closures have taken place all over the world since the outbreak of the pandemic in Q1 2020, with the virus forcing shutdowns due to a lack of dock workers. Now, as new waves and variants of coronavirus emerge in different regions, it appears likely that port closures will continue to be a fixture for some time.

Whenever a port is closed, it is shut for an undefined period and, as has been the general case with the pandemic, this disruption creates uncertainty. The most notable example of late was last month’s sudden three-week closure of the Yantian container port in China, which is part of the fourth-largest container port globally, Shenzhen.

View of Yantian container port from the skies – consider the scale of trade delayed or lost through a three-week closure. 

Similarly, a third wave of infections is also spreading across the African continent and shutting down port operations. However, the busiest port in Africa, Durban, recently experienced a week-long closure for non-Covid related reasons, with civil unrest leading to a declaration of force majeure in the South African port.

What do these closures mean? Those ports that are operational are congested and still at risk of delays and, as a result, this is driving up shipping container prices.

Indeed, shipping containers and dry bulk freight are at their highest levels since 2008, with some container prices increasing nearly tenfold from $2,500 to $20,000, according to this source.

Why? Because port saturation has reduced capacity on most freight routes, meaning demand and competition for containers on such routes has become much greater. Particularly costly freight routes are believed to be from Asia to Europe, which is far from ideal considering India is the second-largest sugar producer in the world, exporting circa 6-7 million tonnes onto the world market each year.

Unfortunately, analysts also predict that container prices are likely to reach even ‘greater highs this year and will remain above their pre-pandemic levels in the longer term’.

In sugar terms, however, these soaring container prices are unavoidable. Simply because sugar manufacturers source different types of cane and beet sugars from all over the world so that they can manufacture the highest quality and most consistent finished product. To do so, they must import sugar in thousands of tonnes, relying on freight shipping as the only viable and sustainable bulk transportation method available.

HGV drivers are in high demand in the UK market. 

So far, we’ve explored the challenges sugar manufacturers face importing primary production materials into the UK. What about transporting the materials to their production facilities or delivering the finished products to their customers?

Sadly, the domestic situation is also rather demanding. There is currently a shortage of heavy goods vehicle (HGV) drivers in the UK, more than 100,000 according to estimates from the Road Haulage Association, and this lack of vital skills and experience could well be reaching crisis point. Indeed, one would be hard-pressed to pick up a newspaper without seeing a headline relating to the labour shortfall.

This was initially prompted by the outbreak of Covid last year, meaning that circa 30,000 HGV driver tests could not be taken. Then, earlier this year the UK’s exit from the European Union (EU) added to the shortages because a considerable portion of the UK’s pool of truck drivers – some 15,000 – left the UK in the last year and cannot re-enter due to post-Brexit rules.

The challenge has since been exacerbated, too, largely due to the fact we are now learning to live with coronavirus. The gradual reopening of the economy since March has led to the ever-increasing demand for drivers – and demand is now skyrocketing, especially after the so-called ‘Freedom Day’ earlier this week.

On top of this, you also have the reality of some drivers being ‘pinged’ by the NHS Test and Trace app. Heavy goods transportation is of course not an occupation that fits into the work from home model, so obviously drivers forced to self-isolate are out of operation for 10 days.

All of these supply chain challenges are adding up, and there can be no doubts that the confluence of factors is significantly contributing to the increase in sugar prices. Supply chains are robust when managed carefully, as we have learnt over the past 18 months, but they are not bulletproof.

As ever, the most important thing for our customers is availability, reliability and continuity of pure sugar product supply. Though supply chain management has always been complex, at present the complexity is heightening. Our advice to you – partner with experts who have first-hand experience of supply crises and are well-placed to support you through the challenges.

Ragus critically engages with the myriad factors that affect the sugar market, and how they can impact its customers and their customers. To find out how we can help you navigate this uncertain landscape, please contact our Customer Services Team. To see more sugar news and updates, continue browsing SUGARTALK and follow Ragus on LinkedIn.