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There is an ongoing blame game in global shipping. Everything from game console sales to container locations to competition has been listed as a factor in the rising cost of ocean freight across the world’s oceans.
But a year after the start of the price spike, it still proves rather difficult to assess how much of the disruption is due to demand factors and how much it reflects more fundamental problems on the side of the world. ‘offer.
Despite the easing of closures in the United States and Europe, strong demand for consumer goods remains a factor. Gene Seroka, LA Port Manager, recently told Odd Lots that they are still handling more cargo than ever before.
Shipping has also always been a very cyclical business. Transportation costs between East and West Asia always tend to increase as Christmas approaches, for example.
However, evidence is mounting that high prices reflect structural problems (and are therefore likely to persist longer). It hit our inboxes earlier today from Xeneta, a company that provides data on shipping freight rates charged to some of the world’s largest exporters:
According to the latest public long-term XSI® indices, the global index [which measures shipping freight costs on some of the world’s main trade routes] recorded a staggering 28.1% jump [between June and July], blowing the previous record (an increase of 11.3% in May 2019) out of the water. The benchmark index is now 78.2% higher than in July 2020, up 76.4% in 2021 alone.
Yes, you read that right. Prices have jumped nearly a third in a single month and the index has risen by more than three quarters in the year so far. For European imports, the picture is still gloomier with prices jumping nearly 50 percent on the month and 120 percent year-on-year.
We are talking about territory of actions itself here. Without the likelihood of a subsequent price collapse.
To explain why shipping prices are unlikely to collapse the same way we did for, say, lumber, we need to step back a bit. For those of you who are not tracking shipping, there are two kinds of contracts: short term and long term. Long-term contracts involve securing a certain number of containers for a number of crossings for years to come and tend to be much cheaper and less volatile than short-term contracts, which reflect the booking price of a container on the next available ship.
For example, here is the Xeneta chart for short-term contracts for shipping a 40ft container on routes from East Asia to Northern Europe:
Over the past year, short-term prices have risen 600 percent. While comparing an itinerary with the evolution of long-term shipping costs from all destinations to Europe isn’t perfect, she points out that daily rates are much more volatile.
It’s a bit like comparing headline inflation, which includes changes in the cost of more volatile items such as food and energy, with the base measure, which excludes those goods. Since the basic measure is less likely to be wrong, it is considered more representative of entrenched price trends.
So the fact that long-term prices are now rising to levels that Xeneta CEO Patrik Berglund calls “truly mind-blowing” suggests that increasingly what we are seeing happening to the cost of ocean freight – the average by. where 80 percent of imports reach consumers – reflects supply side constraints that are often more difficult to resolve than high demand.
So what does this mean for the evolution of prices?
We are skeptical that Joe Biden’s efforts to challenge anti-competitive practices will have a significant impact on costs. The White House is also not targeting freight rates, but other charges. Clearly, a lack of capacity can be addressed by building more ships. But, as Xeneta points out, with 300 new ships on order, they won’t be online for some time.
The result is that it is difficult to see costs fall back to pre-pandemic levels until the Chinese New Year 2022. as soon as possible – the next period when you would expect cyclical demand to decline – and, more likely, not for years.