High Container rates and shortages to persist
According to the Malaysian National Shippers’ Council (MNSC), exorbitant freight rates that have been aggravated by the container supply shortage are expected to continue for another eight months.
The Malaysian Reserve reported that based on MNSC’s survey gathered from shippers, as of February, the freight rates have skyrocketed to a historic level of between US$6,000 and US$10,000 per container compared to US$55 to US$300 per container before the pandemic.
These high container rates and the unlikelihood of falling prices are further echoed by Jan Hoffman, Chief of Trade Logistics Branch at United Nations Conference on Trade and Development (UNCTAD) in a report by Maritime Executive, a Florida-based online news portal covering maritime news and information.
According to the news portal, in May, it reported on the explosive rise in container rates across major global trade routes.
“The result in an increase in shipping costs, posing an additional economic burden for a world that is already struggling to recover from a pandemic,” Maritime Executive stated.
Hoffman also explained to Maritime Executive that in its wake, the Covid-19 pandemic has caused immense trade restrictions along the global supply chains, as felt at Yantian, Los Angeles and many other ports.
“The terminals slow-down is causing inefficiencies along intermodal connections, making containers spend about 20 percent longer in the system for each shipment. As long as the pandemic is not container, I believe that the situation will get even worse, driving freight rates even higher,’ Hoffman said.
Hoffman added that following observations for more than a decade, carriers have been on the receiving end of very low freight rates.
“To reduce units costs, carriers invested in even bigger and newer ships, but the problem is that older ships were not scrapped – and the overcapacity remained. That said, the race to build bigger vessels (for economies of scale) will likely arrive at the maximum possible vessel size in the near future,” he said.
The Maritime Executive further added that over the years, the shipping industry has been experiencing consolidation, leading to fewer carriers than before. Thus, competition and choices for shippers went down while the options to manage capacities and port calls has improved, from carriers’ perspective. This leaves the carriers in an advantageous position to dictate freight rates compared to shippers.
Hoffman also feels that, Maritime Executive reported, the ongoing decarbonization efforts may lead to slightly higher freight rates.
“A recent analysis by UNCTAD on this subject concluded that IMO’s initial strategy on reduction of greenhouse gas emissions – such as speed limits – though having an immediate positive impact on the industry’s carbon footprint could also lead to higher freight rates. Nevertheless, such an increase will be very small compared to the current volatility of rates caused by market forces. Until the industry fully transitions into cleaner fuels, we cannot rule out the effects of decarbonization on rates,” he said.
However, despite the negative sentiments on freight prices, Hoffman mentioned that the silver lining of this is enjoyed by ocean carriers, who are posting record high profits.