FIVE REASONS OF RISING FREIGHT RATES

Writer： admin Time：2021-07-02 09:47 Browse：

Shipping costs have been rising strongly since the fall of 2020, but the first few months of this year have seen fresh spikes in rates for dry bulk cargo and containers on major trade routes. Freight rates on several trade routes have tripled compared with last year, and there has been a similar rise in the cost of chartering container ships.
Here are five reasons costs aren't going down anytime soon.
1. Persistent global imbalances
The problems that have accumulated since the beginning of the outbreak include: a. Imbalance between production and demand for goods; b. Countries blockade and open at different times. [C]. Shipping companies cut capacity on major routes. There is a shortage of empty containers. As the economy gradually recovered, global demand became stronger, especially in the shipping industry, which is most closely linked to international trade in goods. As economies open up further and inventories are rebuilt at all points in the supply chain, the demands on shipping capacity are higher.

2. There are few alternatives to shipping
The lack of alternatives to shipping means it is hard to avoid soaring shipping costs for now. For products of high value, such as electronic products, it is usually possible to choose other means of transportation such as air or train, such as by train. But capacity is limited and rates have risen sharply. For industrial goods such as pipes, shipping costs have risen from about 10 per cent to more than 50 per cent of procurement costs, which also means consumers are likely to forgo purchases.

3. An unbalanced global recovery in 2021
Some countries have exported goods at higher levels than before the outbreak, while in others, such as the United States, export levels still lag behind overall output. Trade in goods will grow further, and recovery will continue not only in these major trading countries, but also in other trading partners.
As the demand for shipping capacity will continue, an unbalanced global recovery will continue to exacerbate some of the problems of world trade, including the "displacement" of empty containers, which will put even greater pressure on rates in the short term.

4. Reducing the number of blank trips will help ease capacity constraints
Globally, capacity on major routes has actually returned to pre-blockade levels in 2020, despite a 10% reduction in planned capacity due to empty flights in the first quarter. There are signs of improvement in the current quarter, with a 4 per cent blank voyage on the current fleet schedule. But the cancellations were partly a reaction to the delays and forced cancellations. So while the system is still strained, a small amount of capacity may be cut at short notice to cope with delays.

5. Port congestion and closures continue to cause delays
As with cancellations and delays, congestion is part of the problem. Shipping performance in 2021 continued the pattern seen in 2020, with a lower percentage of ships sailing on schedule and an increase in the average delay time of overdue vessels.
There are signs that ship performance will improve, as the proportion of ships arriving on time did not decline in April and the average delay of ships has started to improve, but overall performance remains at its lowest level in a decade.

Meanwhile, the outbreak continues to take its toll, including the abrupt closure in early June of the Chinese port of Yantian, the world's fourth largest container port. Although business has resumed, congestion and quarantine measures mean delays will increase. While progress has been made in vaccination in China and other major trading countries, it will take time to establish immunity, so there is a risk of port disruptions in the coming months.
Massive new container capacity will ease price pressure, but only after 2023.
Container Lines has achieved outstanding financial performance during the outbreak, with a record 229 new shipbuilding orders for container ships in the first five months of 2021, with a total cargo capacity of 2.2 million TEU. When the new capacity reaches 2023, when the new capacity is ready to come on line, it will bring a 6 percent increase in capacity, but the dismantling of older ships is not expected to offset this increase.
The coming increase in capacity will put downward pressure on shipping costs as global economic growth enters a catch-up phase of recovery, but rates will not necessarily return to pre-epidemic levels as freight carriers appear to have learned to better manage capacity in their alliances.
All in all, in the short term, freight rates are likely to reach new highs due to further growth in demand and constraints such as port congestion. Even if capacity constraints can be eased, freight rates are likely to remain higher than they were before the outbreak.