5 reasons why global shipping costs continue to rise!

Currently, shipping costs have risen sharply, and fierce competition in shipping capacity has become the new normal. As the new capacity is only slowly put into production, it is expected that this year's freight rate will continue to hit new highs and remain above the pre-epidemic level in the long term.

No short-term relief

Since the fall of 2020, shipping costs have been increasing strongly, but in the first few months of this year, the prices of different freight rates (dry bulk, containers) on major trade routes have seen new increases. Compared with last year, the prices of several trade routes have tripled, and the chartering prices of container ships have also seen a similar increase.

There is almost no sign of relief in the short term. As the growth of global demand will continue to meet the limited capacity growth and the destructive impact of the local blockade, freight rates may continue to soar in the second half of this year. Even if new capacity arrives, container liner companies may continue to manage capacity more actively, thereby keeping freight rates at a higher level than before the COVID-19 pandemic.
5 reasons why global shipping costs continue to rise!(图1)
5 reasons why global shipping costs continue to rise! 5 reasons why global shipping costs continue to rise!

air freight shipping from china to usa

Here are five reasons why ocean shipping costs will not drop anytime soon:

1- Continued global imbalances further push up prices

Problems that have accumulated since the beginning of the new crown virus pandemic include unbalanced cargo production and demand, different lockdowns and opening times in various countries, as well as shipping companies' reduction of capacity on major routes and shortage of empty containers. With the advancement of economic recovery, global demand is recovering strongly, especially in the sectors most closely related to international trade in goods. With the further opening of the economy and the rebuilding of inventory in multiple links of the supply chain, competition for shipping capabilities has intensified.

2- There are few alternatives to sea transportation

The lack of alternatives to shipping means that it is currently difficult to avoid soaring shipping costs. For higher-value products, other modes of transportation can usually be chosen, such as the transportation of electronic equipment by air or train, especially via the "Silk Road." However, the current capacity is limited and tariffs have soared. Shipping costs for shippers of low-value products such as household goods, toys, promotional items or T-shirts have increased from about 5% of their purchase costs to more than 20%.

It is difficult to digest profit growth of this scale, which means that consumers may begin to feel the impact of price increases or changes in product supply.

3- The unbalanced recovery throughout 2021
Trade in goods will grow further, and not only the major trading countries but also their trading partners will continue to recover. As competition for shipping capacity will continue to exist, the unbalanced recovery will continue to exacerbate some of the problems of world trade, including the transfer of empty containers. All of this has increased the pressure on freight in the short term.

air freight shipping from china to usa
5 reasons why global shipping costs continue to rise!(图2)
5 reasons why global shipping costs continue to rise! 5 reasons why global shipping costs continue to rise!

air freight shipping from china to usa
4- Ship blank sailing to shrink capacity
Globally, the capacity of major routes has returned to the level before the major blockade in 2020, although blank sailing (cancelled port calls) continued to reduce scheduled capacity by 10% in the first quarter. There are signs of improvement this quarter, with an average of 4% according to the current plan. But the cancellation part is a response to the delay, so although the system is still crowded, the transportation capacity may continue to be taken out of the system in a short time.

5- Port congestion and closure constantly

As the link between canceled flights and delays shows, congestion is part of the problem. The performance of shipping in 2021 continues the performance of 2020, as the punctuality rate of ships has decreased and the average delay rate of ships arriving at the port has increased. There are some signs that as the proportion of ships arriving at their destinations on time stopped declining in April, average delays have improved and average performance will begin to improve, but overall performance is still the lowest in a decade.

Proportion of ships arriving on time
At the same time, the COVID-19 pandemic is still causing disruptions, such as the sudden closure of China's Yantian Container Port-the world's fourth largest container port-in early June. Even if operations have resumed, congestion and the continued need to take measures to stop the spread of Covid-19 mean that delays continue to increase. Although China and other major trading countries have made progress in vaccination programs, it takes time to develop immunity, so processing interruptions will remain a risk in the coming months.

air freight shipping from china to usa
5 reasons why global shipping costs continue to rise!(图3)
5 reasons why global shipping costs continue to rise! 5 reasons why global shipping costs continue to rise!

air freight shipping from china to usa
A large number of new container capacity will ease price pressure, but not before 2023

Container liners have achieved outstanding financial performance during the epidemic. In the first five months of 2021, new orders for container ships reached a record 229 ships, with a total cargo capacity of 2.2 million TEUs. By 2023, when the new capacity is ready to be put into use, after years of low deliveries, it will increase by 6%, and it is expected that the scrapping of old ships will not offset this. As global economic growth crosses the catch-up stage of recovery, the upcoming increase in shipping capacity will put downward pressure on shipping costs, but it will not necessarily bring freight rates back to pre-COVID-19 pandemic levels, because container liners seem to have learned to play with them. Better manage capacity in the alliance.

In the short term, due to the further increase in demand and the constraints of the congested system, freight rates may hit new highs. Even if capacity restrictions are eased, freight rates may remain at a higher level than before the new coronavirus pandemic.
air freight shipping from china to usa

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