It’s safe to say that these days, cargo shipping rates are anything but even-keeled. With seemingly no end in sight, container freight rates are instead increasing to levels few in the industry could have imagined just a few months ago. Now the question everyone, from cargo owners to exporters to logistics providers, is asking: how long will this last?
This time one year ago, you had to pay US$1000 to ship a 20 ft container from Asia to Europe. In June 2021, container shipping rates for the same route had increased to more than US$8,000. The reason for the price rush has been discussed at length, but as with many unforeseen events in the last year, it is clear that the Covid-19 pandemic is to blame for the sky-high international container shipping rates.
Hence, we could say that all that is needed for container shipping costs to return to pre-pandemic levels is that the world gets the virus under control, but unfortunately, there’s more to it. Let’s try to unpack it all.
So, it is clear that Covid-19 is a big reason we have seen such a hike in global container freight rates. The pandemic has created an increased demand for products, ranging from personal protection equipment to home electronics. A disproportional amount of these products is “made in China” and thus requires shipping to eager consumers in Europe and the US. With a limited number of containers in the world, the increase in shipping container transport costs could actually be explained by the rule of supply and demand.
But of course, there’s more to the high container shipping rates than the world just staying home and playing PS5, and wearing a mask when finally venturing out. And naturally, if the solution was as simple as manufacturing more containers to lower cargo shipping rates, we would have done that already.
Instead, it is a little more complex: with more goods being shipped, a higher number of ships, with a record number of containers, are also docking at more ports. This in turn, creates heavy congestion at principal harbours in Asia, Europe, and the US: for example, the waiting time for a ship to dock and unload in Oakland, California, is now three weeks.
And then, if you add a Covid-19 outbreak among workers in a port that is already under pressure, like Yantian, the largest single port in China, you suddenly have a situation where containers sit in the dock for an average of more than 23 days. And this in a market where there’s already a container shortage.
So, if we thought the Suez Canal stoppage earlier this year was terrible, it seems the backlog that we have now will inflate container freight rates even more and that the record fees will not stabilize until the end of this year or early 2022.
But of course, the return to normal will not happen automatically. As mentioned, with so many containers stuck in ports all over the world, more actual containers are needed to be manufactured. In addition, for cargo shipping rates to stabilize, the production of goods will have to return to a pre-pandemic situation where both Europe and the US may have to be less dependent on manufacturing in China and instead generate more of their own merchandise.
So far, many companies who had long-term contracts with freight forwards have been somewhat spared from the upsurge in international container shipping rates. But by now, freight forwarders have incorporated the higher container shipping rates into many of next year’s transport contracts. With even long-term contracts at peak rates, some Chinese exporters are transferring freight aimed for European markets to railways transport. While this is still a minor part of the total sum of containers coming out of China, the number of containers leaving the country on freight trains has increased by 33% since April 2020, according to the National Development and Reform Commission, China’s top economic planning agency.
So how do high contract rates and increased competition from other modes of transport impact the more variable spot market? No one knows for sure, but one possibility is that there may be opportunities for lower container shipping costs at the end of 2021, compared to fixed contracts, which would be a welcome respite for many cargo owners.
The Adnavem platform will carefully monitor how the market evolves and will continue to offer cargo owners the best alternatives, whether its lowest price, optimal timing or even the greenest transport alternative, from world’s leading logistic providers.
These are challenging times for cargo owners all over the world. As a business partner, Adnavem will continue to collaborate with logistics providers to offer the fastest and greenest shipping alternatives and, especially when prices are high, the lowest spot price container shipping rates out there.
Whether you’re a cargo owner or a logistics provider, if you want to find out more about partnering with Adnavem, please contact us here.