After 18 months in this pandemic, many issues have arise in the global economy. While some countries are beginning to feel some sense of normalcy, others are still reeling from the aftershocks of the virus. One pressing issue that has always resurfaced is freight. In part 2 of this 3 part series, we try to explore more about Insufficient Containers and Freight Costs during Covid-19 Pandemic and together, hopefully try to better understand the Global situation.
Some recent observations:
- Reduced Responsiveness of Agents / Liners – Part 1
- Sudden Roll over (postponement) of confirmed containers – Part 1
- Extended Export / Import clearance times (Loading / Unloading Port) – Part 1
- Increased transit times – Part 1
- Insufficient Clean Container Cubes available – Part 2
- Rising Shipping & Freight Cost – Part 2
5. Insufficient Clean Container Cubes:
According to the National Retail Federation, the past year has experienced new monthly record highs (even before the yearly peak season) of containers imported from Asia to the US:
- October 2020: 2.21m TEU (highest in 2020)
- March 2021: 2.27m TEU
- May 2021: 2.33m TEU
Apart from vessels, the shortage is further impacted by the downtime of many active containers which are stuck in ports or outside ports and not in Asia ready to be loaded. As transit times increases and vessel delays continue, containers that came from the East markets are not able to return to their original ports in time.
According to Triton International, the world’s largest container-equipment leasing company, factories built around 2.6m TEUs of dry containers in H1 2021 – more than the 12-month totals in most years. However, whatever has been built has already been absorbed into the supply chains leaving inventories at low levels re-confirming the strength of freight demand and reflected in the price of new dry containers.
Thus, despite new production, there is still an indefinite shortage and a lack of suitable containers for Food Grade products from the East.
6. Rising Shipping & Freight Cost:
The Covid-19 Pandemic has naturally caused more people to stay indoors, reducing expenditures on tourism, restaurants, entertainment and other service sectors. Coupled with the various government stimulus packages, the large increase in discretionary income has resulted in an increase of spending on goods and a reduction of retailer’s inventory levels to dangerously low levels.
A Census for Inventory to sales ratio of US retailers showed:
- The Average in 2019 was 1.47
- May 2020 was 1.34
- May 2021 was 1.09
This lower inventory numbers have resulted in retailers being pressured to restock inventory to meet with customer demands. They are seen placing their peak season orders earlier to avoid being caught with empty shelves adding demand to freight space. This translates to rates remaining high and carriers levying additional surcharges.
Enabled by the mass digitalization, a huge number of consumers have turned online to import goods internationally too. This huge growth in demand added with the additional backlog of ships and the upcoming peak seasons (Aug – Oct) further stresses shipping freights as demand far outstrips supply.
According to Freightos Baltic Index (FBX), a price benchmark for major shipping routes:
- Asia to US-West Coast: 290% higher than same time last year
- Asia to US-East Coast: 333% higher than same time last year
- Asia to North Europe: A staggering 750% higher than same time last year.
In order to segment and prioritize demand, liners have pushed premium services for those who wish to ship at the earliest possible chance at a higher price. While some major carriers attempt to shift ships to the Asia-Europe Lanes, some of these vessels only cater to premium shipments due to severe overbooking. Also, the shifting of vessels to the Asia-Europe lanes directly reduces the capacities of their previous lanes.
As demand spikes due to delays, lack of freight capacity and other compounding effects, overall average container shipping prices has reached record highs. This has disrupted maritime logistics supply chains and further drove demand through the roof.
Due to the large demand, Containers and freight Costs during Covid-19 has been felt on a global scale. So how and when will shipping rates start going down?
Stay tuned for the final part of this 3 part series, as we learn more about freight issues in this Covid-19 Pandemic.
– Your Fellow Organic Coconut Sugar Lover –