Container shipping rates set to remain high this year, UN trade agency says
A coronavirus-induced surge in container shipping rates is expected to continue this year, with the cost burden passed on to consumers, a UN report said.
Policymakers were urged to focus on long-term reforms to promote trade and ports, improve tracking and forecasting and strengthen antitrust authorities, the UN Conference on Trade and Development said in a policy brief.
“The ripples will hit most consumers,” said Jan Hoffmann, head of Unctad’s trade and logistics branch. “Many businesses will not be able to bear the brunt of the higher rates and will pass them on to their customers.”
About 80 per cent of consumer goods – including clothes, medicines and processed foods – are transported in containers ferried by ships, he said.
Global container shipping rates rose during the Covid-19 pandemic as changes in consumer behaviour and shopping patterns, including a rise in e-commerce during lockdowns, fuelled demand for imported consumer goods.
Spot freight rates surged last month when the Ever Given container ship blocked the Suez Canal for about a week.
Before this, rates had begun to ease from record highs reached at the height of the pandemic.
“Shipping rates are a major component of trade costs, so the new [increase] poses an additional challenge to the world economy as it struggles to recover from the worst global crisis since the Great Depression,” the report said.
The increase in shipping rates is one of a number of inflationary pressures faced by businesses and consumers. Fuel costs have also increased, with some businesses raising prices to recoup losses incurred during periods of movement restrictions.
International Air Transport Association chief Willie Walsh this month called on governments to stop “monopolistic-type behaviours” by some airports and other parts of the industry’s supply chain.
The growth in container demand continued to increase as governments eased Covid lockdowns and approved stimulus packages while businesses stocked up in anticipation of new infection waves.
“The increase in demand was stronger than expected and not met with a sufficient supply of shipping capacity,” the UN agency said. “Carriers, ports and shippers were all taken by surprised. Empty boxes were left in places where they were not needed, and repositioning had not been planned for.”
The effect on freight rates has been greatest on trade routes to developing regions, where consumers and businesses can least afford it.
Currently, rates to South America and western Africa are higher than to any other major trade region. Freight rates from China to South America rose by 443 per cent early this year, compared with a 63 per cent increase on the route between Asia and North America’s eastern coast, it said.
This is partly because routes from China to countries in South America and Africa are often longer. More ships are required for weekly services on these routes, meaning many containers are also “stuck” on these routes.
“When empty containers are scarce, an importer in Brazil or Nigeria must pay not only for the transport of the full import container but also for the inventory holding cost of the empty container,” the policy brief said.
Another factor is the lack of return cargo. South American and western African nations import more manufactured goods than they export, and it is costly for ships to return empty boxes on long routes.
The UN agency called on policymakers to introduce reforms to make trade easier and less costly. By reducing physical contact between workers in the shipping industry, such reforms would also make supply chains more resilient, it said.
Policymakers need to promote transparency and encourage collaboration along the maritime supply chain to improve how port calls and liner schedules are monitored, said Unctad.