Covid-19 pandemic has occurred more than one year, and still influences the whole world today. Good news is that the global economy is recovering. International trades come back to life day and day, especially the e-commerce. However, importers and exporters now face a crucial test-the crazy increasing ocean shipping costs and shortage of containers. Swelling freight rates and container shortage have become a global challenge disrupting supply chains across industries. Over the last six to eight months, shipping freight rates across transportation channels have gone through the roof. This has had a consequential impact on allied functions and industries, such as auto, manufacturing among others.
In this article, we will look into the increasing trends of ocean shipping rates, the impacts of crazy shipping on your global business trades, and some tips to help your business afloat.
How Much Have the Ocean Shipping Rates Increased?
Ocean shipping is currently a mess, serious shortage of shipping containers, a backlog of ships waiting for loading and unloading at ocean ports, while oversea transport demands keep increasing. Ongoing demand translates to freight rates climbing on most lanes, with some carriers introducing early peak surcharges to already elevated prices.
The Freightos Baltic Index pegs the market rate for a single 40’ container at a little over $4,000—nearly quadruple what it was a year ago.
This unprecedented spike in container prices have caused delays for online importers trying to import goods abroad.
It’s doubly worrisome because about 60% of all global goods are shipped by ocean container.
Of course, this whole price hike affects all industries that ship goods, but some analysts say that e-commerce and Western consumers may bear the brunt of it, mainly because of most e-commerce sellers in North America and Europe deal with Chinese suppliers, long shipping distance, long lead-time.
- Asia-North Europe freight rates climbed to a new high of $11,037/40GP, nearly 600% higher than last year.
- Europe-North America rates rose to $5,193/40GP, nearly a 20% increase since last week.
- Asia-US East Coast rates increased 25% to $9,317/40GP. These rates are 250% higher than rates for this week last year.
- Transpacific Asia-US West Coast rates rose 15% to $6,341/40GP. This rate is 245% higher than the same time last year. Though port congestion and delays have improved compared to the start of the year, this continues to be a problem.
Why Are Ocean Shipping Costs So Crazy High?
1–The COVID-19 Pandemic
Firstly, the COVID-19 pandemic has changed consume behavior. Cities were locked down, people stayed at home, seldom eat-in. Health concerns and lockdown restrictions caused the market to depend heavily on e-commerce. People are setting up home offices, buying fitness equipment to work out at home, and even ordering food and essentials strictly online. The increased demand for various goods, helping the shipping rates go higher.
Secondly, all the major oil-producing nations have cut down production drastically due to the pandemic, which has created a demand-supply imbalance resulting in pricing pressures. Crude oil shortage making the shipping rates increase.
Thirdly, surging demand for goods but shortage of empty containers is another reason for distribution going haywire which has in turn caused freight rates to rise so significantly.
2– Trade Imbalance between China and the West
Another major reason behind these surged prices is the tremendous demand for containers in China. For example, China sends three containers filled to the brim with iPhones to the United States. In turn, those three containers filled with soybeans get shipped back to China. However, the problem is when China does not really need three full containers of soybeans back. Then those three containers stayed at US ports waiting for be filled and then turn back. With time going, more and more containers delayed at ports in the West, which making the ports very crowded, new containers difficult to anchor, and a heavy shortage of container in China. Therefore, the freight rates are substantially high there.
3–Trade War between China and the US
The ongoing trade war between China and the US influence the stability of the global trade. Even with the recent change in administration, the uncertain surrounding tariffs has caused a lot of Chinese exporters to rush their goods into the US before new tariff schedules take effect, which has caused freight charges to increase over the past year.
4– Other Factors
Apart from the aforementioned points, there are a few lesser-known contributors to the high freight rates. Communication issues stemming from last-minute diversions or cancellations in the current scenario are one of the reasons for booming freight prices. Also, the transportation sector, like other industries, tends to have ripple effects when corporations take major actions. So, when the market leaders (the largest carriers) decide to increase their costs to recuperate losses, the overall market rates are inflated too.
Effects of High Shipping Costs to Your Business
1 – increased costs in terms of shipping and handling that can eat up profits and tighten cashflow
2 – the high shipping costs translate to high shipping fees paid by customers, and some customers may opt for cheaper shipping (his competitor)
3 – leaves the entrepreneur little room to maneuver if there are shipping errors
What to Do to Protect Your Business
In the current situation, many importers, especially those small or midsize importers, are wondering when they can expect the ocean shipping costs to go down, when the shipping rates can be normal. The answer is–not yet.
But, despite potential delays and high freight shipping costs, there are a few steps importers can take right now.
1– Advance shipments Plan
One of the most effective ways to combat these high freight rates is advance planning of shipments. Cargo cost is increasing every day. To avoid paying surged charges and avail early bird facilities, companies have to strategically plan their shipments well in advance. This can help them save a considerable amount of cost & help them avoid delays.Consider booking your shipments weeks or even months ahead.
2– Work With a Reliable Freight Forwarder
Admit it or not, it’s not so much what you can do, but what your freight forwarding company can do for you.
Be sure to work with a reliable forwarding company. Large and established freight forwarders can deal on your behalf more effectively than smaller companies, and they have much more resources at their disposal.
3– Understand That Delays and Extra Charges May Arise.
Freight forwarders are trying their best to move goods on schedule without additional fees, but in this unstable period, delays and additional charges can occur out of forwarders’ control.
4– Consider Alternatives If It Makes Sense
Actually, there is only a marginal price difference between a 20’ containers and a 40’ container. If you can, order more products and ship a 40’ to lower your per unit costs. If your budge and warehouse permit, change your LCL plan to a FCL purchase.
When Will Ocean Shipping Go Down?
Now ocean shipping situation is crazy, and we always get the same question from all of our clients, that is when the high shipping prices will go down, when the global trade shipping will be normal. Matter of fact, no one is sure the date. We all hope the shipping back to normal. Expertise estimate the shipping cost should be go down from June 2021 slowly, maybe July 2021. There is no a certain answer. The shortage of containers has not be solved, while demand for global shipping increase, so the bad situation will last longer.
Conclusion:
This terrible whole sea freight rate situation doesn’t seem to be going away any time soon, and we are all on the same boat.
In order to protect your business stable well, understanding why sea freight has become more expensive and a lot more complex will help you prepare and plan out your procurement more effectively.
If you are glass bottles importers, and confused about the shipping costs, you are welcome to contact with us–your reliable wholesale of glass bottles and jars in China. We are here to try our best to prepare your purchase order plan, making fast delivery, avoid more higher shipping.
