A Freight-ening Rise: Shipping Transportation Prices Increase
February 12, 2021
3 min read
What's going on here?
With COVID-19 triggering fluctuating patterns in supply and demand, the global shipping market is experiencing record high freight rate costs for the transportation of cargo.
What does this mean?
At the core of the problem, thousands of empty containers were left stranded across the globe. This was because of a slowdown in global trade due to COVID-19 in early 2020. Now in 2021, the global shipping market is working towards the slow process of recovery.
Of the various trade routes and destinations which goods are shipped to and from, costs for transporting goods through shipments have increased almost fourfold. With the Global Container Index having reported the market rate for 40-foot containers as costing $1,574 on 15 February 2019, this is in stark contrast to the $4,144 rate reported on 5 February 2021.
Of particular concern for the UK is the importation of goods from Asia. Whilst the pricings outlined above indicate the general rate, it is also important to highlight that freight rates are influenced by the specific shipping routes which connect major continents. When shipping 40-foot containers from Asia to Europe, what would once cost approximately $2,000 in November 2020 has now increased to the pricing range of $9,000-$12,000 for the shipment of cargo in 2021.
What's the big picture effect?
The last time the shipping market experienced such difficulty was during the global recession of 2008 and this took several years to recover from. However, the fundamental distinction between the 2008 and 2021 crises is that in contrast to diminished recessionary demands, the increasing demand for the supply of goods today suggests that the shipping marketplace is no longer as financially inhibited as it once was in early COVID-19 lockdown periods.
So, what are the first steps towards returning to normalcy and the potential lowering of freight rates? Interestingly, the answer may reside in the upcoming Chinese New Year.
Traditionally, Chinese factories would close for several weeks for the Chinese New Year and this could provide the opportunity for transportation backlog to be addressed and the reconfiguration of shipping trade routes to their initial state prior to the pandemic’s outbreak. By providing such relief, this would balance out the levels of supply and demand which have largely contributed to the substantial increase in freight rates.
In response to this theory, the Head of global ocean freight at DHL Global Forwarding Dominique von Orelli predicts that although the high levels of supply and demand are likely to “calm down a bit” during the Chinese New Year, the high freight rates “will likely also go into March and the second quarter” until the demand of cargo levels off and the bottleneck points of congestion in production are fully resolved. Similarly, Matthew Gore, a partner from HFW predicts that it is “how governments around the world will respond to new variants of COVID-19” and the successes of vaccinations globally which will continue to play a crucial role in influencing freight rates.
In summary, the global shipping market is in a vulnerable position and its recovery largely depends on the factors identified by the shipping experts above. Ultimately, with Chinese New Year commencing on 12 February 2021, the next few weeks will be crucial in determining whether it could offer a lifebuoy ring for reducing freight rates in the remainder of 2021.
Report written by Karolina Smolicz
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