Why container freight rates is increasing?

Aug 13, 2021

Shipping costs have been rising steadily since Autumn 2020. The first few months of 2021 have seen price surges across numerous freight rates along primary trade routes, with prices for some trade lanes tripling as compared to last year. What caused container freight rate to rise so much?

Figure : Shanghai containerized freight index, weekly spot rates, 18 December 2009–9 April 2021

Continuing Global Imbalances

From the start of the COVID-19 pandemic, imbalances in goods production and demand built up as countries locked down and reopened at different times. The problem was aggravated by shipping companies reducing capacity on major routes along with a shortage of empty freight containers. Global demand has experienced strong recovery, with a subsequent increase in competition for ocean freight capacity.

Lack of Alternatives

Alternatives to ocean transpor­ta­tion are few. Shipments of higher value products by train or air would usually be an option but limited capacity and spiking tariffs are proving to be an issue. The shipments of lower value products have seen increases in freight costs from an average of 5% up to a massive 20%. Absorbing increases of this scale is difficult and so consumers are likely to be impacted.

Unbalanced Recovery

While some countries are already exporting more products than before the pandemic, exports from others continue to lag behind the overall increase. This unbalanced rate of recovery will continue to compound world trade issues, including in terms of the displacement of empty containers.

Reduced Blank Sailings

Though global capacity on major routes has generally recovered to levels before lockdowns began, blank sailings have continued to cut 10% of scheduled capacity in Q1 of 2021. Cancel­lations have been partly due to delays and so the continued congestion within the system may result in shipping capacity being reduced at short notice.

Port Congestion and Closures

As suggested by the link between delays and cancelled sailings, congestion is a major problem. The rate of vessels keeping to schedules has dropped, accompanied by a rise in the delays of late vessels. Overall performance is at its lowest in a decade of records.

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