Container Shipping Rates Have Never Been Higher
Shipping, and container shipping rates, are notoriously cyclical.
Rates to ship a standard 40 foot container from Asia to Ireland historically have been around $2,000 – $3,000. Covid-19 reduced that significantly due to a slow down of factory production in Asia. But now rates have gone sharply in the opposite direction.
At the time of writing (early August 2021) rates on the China/East Asia to North Europe lanes have climbed to around $14,000. At the same time last year they were around $1,700.
Rates on China/East Asia to North America West Coast are even higher at over $18,000. Indeed there is anecdotal evidence of some companies paying $20,000 to secure a scarce slot.
Why are container shipping rates so high?
A number of factors have conspired to push international container shipping rates so high, as well as more general price rises.
As Covid-19 restrictions lifted, factories rushed to fulfil pent up demand. During the pandemic for many consumers spending opportunities were few and they built up savings which they now wish to spend. Fiscal stimuli, in the US and elsewhere, have also pushed up demand.
And then – due to the directional imbalances on East-West trades – empty containers had to be repositioned back to Asia (the problem of ‘container dislocation’).
The blockage of the Suez Canal in March created a massive bottleneck in global supply chains – and it wasn’t just the days lost when the Canal was blocked. There were knock-on delays too as the finally released container ships queued to offload at destination ports.
Myriad other problems also compounded matters: some observers for example have suggested that the partial closure of Yantian port in South China due to a Covid outbreak among workers had a greater impact than the Suez blockage.
But there’s still 140 days to Christmas …
The reason this is a problem now is that typically in the third quarter of the year companies begin to move product from Asia (the so-called ‘World’s Factory’) in anticipation of demand in the fourth quarter centred on Thanksgiving and then Christmas. The Wall Street Journal recently quoted a representative from US based Seko Logistics as saying that ‘Global Trade right now is the hottest restaurant in town’ where if you need a reservation you need to plan it well in advance.
The challenges around available capacity and freight rates show no sign of abating – importers and their logistics service providers in Ireland are well advised to plan ahead as far as possible. This is not a panacea of course, and forward booking capacity could further push up demand for scarce capacity with a predictable knock-on impact on prices.
Some predict that rates will not calm down until the Chinese New Year in early 2023. What is certain is that, given how taut global supply chains are already at present, we do not need any further unexpected shocks to add to the severe difficulties that already exist.
The next few months are set to be interesting and some flexibility may be needed around the wish list for Santa!
John Mangan is Professor of Logistics in the School of Engineering at Newcastle University, UK, Visiting Professor at the School of Business in Trinity College Dublin, and a recognised author and researcher on logistics and supply chains. He has also consulted widely with public and private organisations. He previously held the Peter Thompson Chair in Logistics the University of Hull and has held academic posts at University College Dublin and the Irish Management Institute.