Shortage of Empty Containers Causing Price Hikes
The cost of transporting cargo from China to Europe has skyrocketed in the past two months because of a significant shortage of empty containers amidst the pandemic.
Long waiting times at airports forced airlines to charge extra for container shipping which also contributed to rate hikes.
Why Rates Soared
This is due to global supply chain disruptions causing the cost of a 40-foot container to increase to over $9,000, up from $2,000. According to consultancy SeaIntelligence expert Lars Jensen, it is companies fighting for containers that is driving rates up, turning them into a limited resource. Shipping lines cancelled many trips due to restrictions on movement and lockdowns in the first half of 2020, leaving thousands of containers lying idle in the U.S. and Europe. This resulted in an abrupt slowdown in trade across the world. When demand for commodities produced in Asia increased in the second half of 2020, forwarders were forced to compete for containers, resulting in significant rate increases.
At the end of 2020, higher volumes of containers shipped along trans-Pacific routes caused rates to further increase. According to industry experts, some companies were paying $12,000 per container transported from China to Europe. In some areas rates increased up to 300 percent, resulting in hikes in commodity prices.
Container shortages are not limited to Europe, however. Cargo owners complain that forwarders are shipping higher volumes to Vietnam and China, resulting in significant container shortages in Thailand. The government already announced plans to subsidize import duties over a period of up to 6 months. According to shipping expert Ghanyapad Tantipipatpong, Vietnam and China are in a position to accept higher shipping rates because they have competitive advantages.
This is why they get more containers and enjoy more space allocation. Transpacific shipping rates have almost tripled in just 1 year, reaching $4,000 in November 2020. Increased demand for cargo shipped along trans-Pacific routes has affected other industries as well. Business planning is increasingly difficult due to cancellations, rollovers, and delays in transportation. One solution that has been proposed is to reduce handling charges as a stimulus for freight forwarders to ship more empty containers.
Supply Chain Disruption
Economists warn that shipping delays and disruptions are starting to affect global supply. Chief economist at Capital Economics Neil Shearing notes that there are signs of pressure intensifying. Many freight forwarders report significant delivery delays causing shortage of goods.
A survey by IHS Markit reveals that manufacturers saw a shortage of semi-manufactured products and raw materials, with hikes in input prices and low inventories. Senior economist at ING Bert Colijn points to the fact that hikes in shipping rates and supply shortages are expected to cause higher inflation in the short term. While forwarders have already placed orders for containers in an attempt to deal with the issue, shortages are likely to persist throughout 2021. Prices are expected to drop but huge volumes of cargo are still stranded and waiting to be shipped.