Shipping Rates under the microscope

Maritime trade came under the microscope after the famous Ever Given megaship ran aground in the Suez Canal, blocking the busy channel for nearly a week.

While shippers are struggling with lengthening port delays, cargo rollovers and soaring freight rates, they have been recently subject to an array of equipment and congestion surcharges including port congestion surcharge, equipment maintenance fee and deficit equipment surcharge imposed by the shipping lines.

Shipping rates are a major component of trade costs, so the recent hike poses an additional challenge to the world economy as it struggles to recover from the worst global crisis since the Great Depression.

Increase in Demand

Contrary to expectations, demand for container shipping has grown during the pandemic, bouncing back quickly from an initial slowdown. About 80% of the goods we consume are carried by ships, but we easily forget this. Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers. The increase in demand was stronger than expected and not met with a sufficient supply of shipping capacity.

Besides the pandemic, Brexit has caused a lot of cross-border friction, owing to which the cost of shipping goods to and from the country has surged exorbitantly. With Brexit, UK has had to give up on several subsidies it availed under the EU umbrella. With the transfer of goods to and from the UK now being treated as intercontinental shipments, coupled with the pandemic complicating the supply-chains the freight rates for goods to and from the UK have already quadrupled.

Rates skyrocket

The impact on freight rates has been greatest on trade routes to developing regions, where consumers and businesses can least afford it. Based on MNSC’s survey in February, the response gathered from shippers indicated that the freight rates have skyrocketed to a historic level of between US$6,000 and US$10,000 (RM41,300) per container compared to US$55 to US$300 per container before the pandemic.

Currently, rates to South America and western Africa are higher than to any other major trade region. By early 2021, for example, freight rates from China to South America had jumped 443% compared with 63% on the route between Asia and North America’s eastern coast.

Part of the explanation lies in the fact that routes from China to countries in South America and Africa are often longer. More ships are required for weekly service on these routes, meaning many containers are also “stuck” on these routes.

 It seems like the sky’s the limit for charter rates. There is no end in sight to the current strong market, with the squeeze of vessel supply showing no sign of easing in the medium term, while demand remains robust across all ship sizes.

The inactive container fleet is now just 2.8% of the global fleet and primarily consists of vessels waylaid by accidents, urgent maintenance, sanctions and waiting periods before upcoming service – anything that can be deployed is deployed.

 The longer-term impact on trade and consumers remains difficult to forecast as no one knows for sure when the situation will ease, or if it might worsen. The Logistics Team at Tradelink have the correct resources to tackle any shipping issues that may come up and are proactive in keeping our customers up to date as to situation of their orders.