Following sharp falls during the early part of the pandemic, global trade volumes have since rebounded. However, volatility in demand, constraints on capacity and the ongoing impact of Covid-19 are causing major congestion at ports and disruption to supply chains.
In this post we explain how the various events that happened in the last couple of years resulted in to an unprecedented increase in the shipping costs. We will also provide solutions to help you mitigate the risks and make sure your business is well protected.
Contrary to expectations, demand for container shipping has grown during the pandemic, bouncing back quickly from an initial slowdown.
“Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers," the UNCTAD policy brief says.
Maritime trade flows further increased as some governments eased lockdowns and approved national stimulus packages, and businesses stocked up in anticipation of new waves of the pandemic.
“The increase in demand was stronger than expected and not met with a sufficient supply of shipping capacity,” the UNCTAD policy brief says, adding that the subsequent shortage of empty containers “is unprecedented.”
“Carriers, ports and shippers were all taken by surprise,” it says. “Empty boxes were left in places where they were not needed, and repositioning had not been planned for.”
The underlying causes are complex and include changing trade patterns and imbalances, capacity management by carriers at the beginning of the crisis and ongoing COVID-19-related delays in transport connection points, such as ports.
Rates to developing regions skyrocket
The impact on freight rates have been the 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. By early 2021, for example, freight rates from China to South America had jumped 443% compared with 63% on the route between Asia and North America’s eastern coast.
Part of the explanation lies in the fact that routes from China to countries in South America and Africa are often longer. More ships are required for weekly service 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 says.
Another factor is the lack of return cargo. South American and western African nations import more manufactured goods than they export, and it’s costly for carriers to return empty boxes to China on long routes.
The Covid crisis put the container shipping industry under intense pressure by knocking normal patterns of supply and demand out of kilter.
Then came the Ever Given, which blocked the Suez canal for six days, delaying hundreds of vessels and causing knock-on effects that lasted for weeks.
In May 2021, Covid-19 outbreaks at Guangdong Province in southern China and one of the busiest ports in the world, Yantian in the city of Shenzhen, brought further impact.
Since the start of the pandemic, a significant hike in shipping rates has been witnessed for Marine Cargo. Shipping expense is now a major element in the cost of goods.
As your insurance broker and business partner, we feel the obligation to ensure that your business needs and interest are as protected as can be. Hence, we put our efforts to stay up to date with the market conditions and how it reflects on our valued clients.
It is a common practice to insure the goods at the declared price (applicable to EXW, FOB, FCA, FAS). In an event of claim, insurance companies would pay for the goods. There will be a shortfall on the shipping costs which will have an adverse effect on your business.
This has led us to seek solutions to guarantee our clients’ interest.
Client should declare the cost of goods at the time of shipping. Once the shipping cost is finalized; we will ensure that the insurance company issues an endorsement to cover the additional cost declared for shipping. In an event of a claim, goods are insured for the landing cost without any shortfall.
"Perfect storm" is an overused cliché, but right now it's a good description of what's going on in the industry. Certainly this is more than merely a case of choppy waters.
But as your partner we will always find a way to navigate you safely away from any storms.