Sea Freight: An unprecedented surge in prices
New records have been hit in container freight spot rates of all carriers, as the Asia-Europe route continues to relentlessly rise and is currently approaching $10,000 per TEU, with further rises expected this month.
Comparing this to previous months, container trading data reveals that during the first trimester of 2021 the average prices for 20ft containers across Europe rose 57%. In April, price increases for 20ft containers were especially severe. Nonetheless, this price increase still continued throughout May and June and further rises are forecasted for July. Meanwhile, the Shanghai Containerised Freight Index rose 1.8% and the Drewrys World Container Index by 2% during the last week of May, as a decline in transpacific rates to the US west coast mitigated rises elsewhere; standing thus at nearly 300% above where it was during this same period in the past year
A surge in demand along with unexpected high volumes and pandemic-related restrictions were the main difficulties that lead to this problem. Since terminals cannot run at full capacity, yet they have to deal with record volumes as economies are re-opening again, ports all over the US, Europe and Asia are congested, and as a consequence, ships are delayed. Adding to that, the further we get into the year, the amount of space is becoming more and more limited since the demand is still continuously increasing.
Besides that, and in order to face this problem, carriers are building up backlog, restricting new booking acceptance and rolling more cargo. These trends are expected to intensify through July with additional delays across the board, which may cause freight rates to further increase.
Taking the example of Hapag-Lloyd, according to Habben Janses, the carriers CEO, the companys own average delay has gone up 160% to 3.9 days. This had a related impact on container availability as it took longer to get equipment back, meaning that it takes them 20% more containers than usual to ship the same amount of goods.
Consequently, and according to many experts, there will probably be no easing or decrease in freight and spot prices until before the fourth quarter of 2021.
What can this price surge be linked to?
Throughout the first half of 2021, more than the usual amount of cargo ships have dotted the Pacifics horizon, each sat there at anchor, sometimes for over weeks, until a spot opened for them at a port. A very abnormal situation since even if it was possible during the prior years for ships to wait for a day or two, it was very rare to reach weeks of waiting. Thus, when adding this waiting time to the previous transit time from the POL to the POD, the shipping time generally doubled from what it was before.
The source of this problem is that when global economies started entering lockdown during the first half of 2020, China was emerging from it. The entire world bought medical protective equipments from China, but once those containers arrived and were unloaded in US or European ports, and due to the lockdowns that those countries were experiencing, there was not enough merchandise produced that allowed those containers to be filled and shipped out. Meaning, containers ended up stacking empty in places they were not needed, and they did not make it back to places they were supposed to. In conclusion, a shortage of shipping containers is worsening a shortage of shipping capacity, which in its turn worsens a shortage of port capacity, and vice versa, a vicious cycle that is worsening as economies are re-opening again.
How is this situation impacting importers and shipping availabilities?
The maritime freight rate availability has always been one of the major problems and worries of importers all around the world. But with the current severe lack of shipping capacity by carriers, more importers than ever are experiencing difficulties to book with the right price at the right moment. With most forwarders having to utilise bookings at higher prices than what was displayed on the typical 'rate sheet' they received from their carrier, because of the severe lack of capacity, or risk delaying their shipment to further dates.