Freight Rates to Stay At 'Unprecedented' Levels Until Pandemic Brought Under Control


In more than ten years in the logistics business, David Sun says he has never seen shipping fees climb as high or quickly as they have this year. "It's unprecedented," 

Ocean freight fees are three to five times higher than the same period last year. The cost of moving a 40-foot sea container from China to Dubai usually is less than US$1,000, but it now costs about US$5,000.

The volatile prices have caused a considerable financing problem for Sun, who must pay his shipping booking agent monthly, but receives payments from clients once every two or three months. Some customers may take up to six.

"That means every month I need to pay the agent three to five times," Sun said. "The cash flow pressure is so high that I have mortgaged my house to the bank." As with many trade-related problems this year, the coronavirus pandemic is to blame.

For shipping costs to return to pre-pandemic levels, global production will have to resume its standard patterns. North America and Europe produce more of their products and rely less on those made in Asia, especially China.

The sharp rise in export volumes from Asia and decline in shipments from the rest of the world has skewed global trade flows, causing bottlenecks at ports and throwing the flow of containers into disarray, driving up shipping prices in the process.

It remains unclear how long the problem will last, with estimates of a return to usual being extended in recent weeks from later this year to early 2022.

Since the middle of last year, most shipping containers sent from Asia to North America and Europe have not been returned because of logistics disruptions and a lack of goods to stock them. The container shortage in Asia was made worse by the Suez Canal blockage in March. In the United States, there has been higher spending on personal protection equipment and home electronics- due to coronavirus- .As a result, containerised imports from Asia to jump by 31 per cent in April from a year earlier. Also, an increase of 27.4 per cent from April 2019, according to PIERS, the US trade reporting service compiled by IHS Markit.

Vessel space in Asia might get even tighter this month because advanced bookings show strong demand for imports into the US, partly because American retailers build up their inventories ahead of the peak Christmas holiday shopping season.

Many containers taken back to Asia are empty because carriers are trying to maximise yields on shipments from the region without waiting for less lucrative loads going the other way, according to Container xChange, a German platform for leasing and trading shipping containers.

In normal circumstances, the world's current supply of shipping containers is sufficient to handle trade flows, but uneven distribution caused by the pandemic has boosted demand for more production.

Chinese factories make more than 96 per cent of the world's dry cargo containers and 100 per cent of temperature-controlled, or "reefer", containers, with three Chinese companies accounting for most of that output, according to Drewry, a British maritime consulting company.

The Chinese government is pushing shipping companies to help alleviate the problem. In April, the Ministry of Transport said it would "actively coordinate" Chinese shipping companies to increase freight volumes on crucial routes and expedite the return of empty containers.

Zhang Shouguo, executive vice-president of the China Shipowners' Association, said the current capacity of container ships would exceed demand under normal circumstances. Because of higher exports due to the pandemic, 11 to 12 per cent of Chinese vessels sitting idle in the first half of 2020 were put back into service in the last six months.

Zhang said shipping companies have also invested more in maintenance, which they had not done before because of the costs.

In addition, Chinese shipowners have transferred some of their domestic vessels to international routes to boost capacity.

"Shipowners in China have already begun to manufacture more ships and more containers, but it takes up to one and a half years to build a new container ship," Zhang said.

The China Container Industry Association said that workers' shifts have increased from eight to 11 hours to keep up with demand last year. But according to Zhang, when the pandemic is brought under control, there will be another problem – surplus capacity.

According to shipping executives, the most significant delays have been at the neighbouring Southern Californian ports of Los Angeles and Long Beach. Recently Maersk said in a customer advisory that the Port of Oakland in northern California had become the epicentre of congestion, with a situation "even more dire" than in the southern part of the state.

Waiting times to dock and unload in Oakland have risen to as much as three weeks, while vessels at Los Angeles and Long Beach are waiting for one to two weeks on average.

Industry insiders say it is hard to predict when the tight supply will ease, but few think the pressure will let up this year.

Mai Boling, chairman of China International Marine Containers – which produces about half of the world's containers – said in March the shortage could last until August or September.

Germany's Hapag-Lloyd said it could stretch on even longer, saying the situation would not be resolved before the fourth quarter of this year, with little chance of supply chain congestion being resolved before then.

High shipping costs have been inserted into many transport contracts for the next 12 months, Bloomberg reported in April.

While exporters have had it tough, the surge in shipping prices has been a financial boon to ocean freight carriers.

COSCO Ship Holdings, the container shipping arm of the China COSCO group, reported a net profit of 15.45 billion yuan (US$2.4 billion) in the first quarter of this year, up from 290 million in the first quarter of 2020, when the pandemic ravaged global supply chains. The company said it was expecting "significant growth" in the first half of 2021 compared with the same period last year.

Maersk reported a record net profit of US$2.7 billion in the first quarter, up from US$209 million in the same period a year earlier.

In a May statement, Maersk said it expected strong demand for exports from Asia to continue in the third quarter and equipment shortages to remain an industry-wide challenge in the Asia-Pacific, with 40-foot and 45-foot dry containers still in short supply. The supply of 40-foot non-operating reefers will also remain in short supply.

Given major seaborne carriers have set new rates and peak season surcharges across the world, some Chinese exporters are shifting European bound cargo to freight trains.

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