Rising Container Freight Rates and The Impact on Logistics

Post By : Karvi Rana
Post Date : September 13, 2021
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Reading Time: 4 minutes

Anticipated to be a short disconcertment for the freight industry, the pandemic has well passed all the bars and continues to cause maximum upheavals in terms of freight rates, demand boom, space congestion, and equipment shortage in markets across the globe.

While the climbing container freight rates continue to treat carriers by driving more profitability, the shippers drain and struggle to operate with the ever-increasing costs. The unprecedented events that unfolded in 2020 have stressed the ocean container market across the globe to such an extent that what was once considered a normal price for a new container is now the cost of procuring a used one.

Although the maximum pressure of the increasing rates is being endured by the trans-Pacific and trans-Europe regions, businesses in India have also been taking the heat substantially.

As per the latest estimates by Container Xchange, the average price for a used 20-foot container in China has increased 94% from November 2020 to March 2021 i.e., the price which stood at $1,299 per box in November last year in March now stands at $2,521.

Speaking of India, across the ports of Chennai, Mundra, and Nhava Sheva, a 58% increase of rates was observed for a used 20-foot container between June 2020 and March 2021, which took the average price from $1,106 to $1,755.

The high long-term contracted container rates were further pushed to a new unprecedented height in May. As per the market intelligence firm Xeneta, the container rates in May showed an additional 9% surge.

The latest Container Availability Index (CAx) data reveals that equipment shortages are also now driving up container prices at major Indian ports. Between May 2021 and August 2021, the average used 20 ft. container prices across the ports of Chennai, Mundra and Nhava Sheva rose from $2975 to$3783, an increase of 27%.

Recent media reports suggest that the prices are increasing between $500 (INR 37,000 approx) to $800 (INR 59,000 approx) every fortnight, which means shipping a container to New York which cost$7000 last month as of August stands at a cost of $8500 presently.

They anticipate that the freight rates are likely to continue on the trail of price surges in the short term if not longer.

REASONS BEHIND THE UNUSUAL HIKE IN FREIGHT RATES

Container rates have a particular impact on global trade since almost all manufactured goods – including clothes, medicines and processed food products – are shipped in containers.

Therefore it is very important to understand some of the major reasons that have triggered this surge in container rates. 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.

According to Christian Roeloffs, Co-founder and CEO, Container xChange, “Key factors leading to heightened prices are – rise in demand over the past one and half years as consumers are spending their money on ordering stuff, shortage of labour, and a major global container repositioning challenge. This means that there is a massive shortage of containers, or rather, a shortage of containers where they need to be. The correction of this imbalance will take time, up until 2022 or even beyond.”

Further, he adds that Container xChange is solving this problem through the platform by making leasing, buying, and selling containers as easy as booking a hotel. “This adds a lot of transparency to the container availability and pricing which is extremely critical for the industry at this juncture of industry disruption,” he said.

Roeloffs further highlighted, “Both demurrage and detention increased in 2021 compared to 2020. Across the world’s 20 biggest ports, the average demurrage and detention charge doubled, going up +104% after two weeks. That’s equivalent to $666 for each container across ports, shipping lines, and demurrage and detention combined. The ten leading Chinese ports experienced the biggest increase in demurrage and detention charges from 2020 to 2021. The costs of demurrage and detention went up by +126%.”

Another factor responsible for the uptick of freight rates is blank sailing which has increased the capacity constraints in ocean freight.

While major shipping routes have recovered to the level of the major lockdown in 2020, the first quarter of 2021 continues to experience a 10% cut in cost due to blank sailing. Often left out of the discussion, the oil price on freight during COVID has also taken a toll on the container rates.

Speaking on the same Manoj Arora, President – Corporate Sales and Marketing, JM Baxi Group said, “When the pandemic hit, the price of oil was at a low. It is understood that an increase in demand for sea transport led to a rise in fuel and oil prices, however, the latest supply has improved with respect to the demand. Even today, we see BAF costs going up.”

He further goes on to explain the effect of steel prices on freight rates. “Price of steel in the international market has increased. The factors that led to this is another discussion altogether. But to quickly put it, it was due to a gap in demand-supply as after the first wave as well as government’s focus on infra development. China that produces 55% of the world’s steel had cut its production in the preceding year. The price of iron ore also increased during the pandemic. So this resulted in the price rise for new shipping containers,” he said.

Importers of some products may face a tough time due to rising freight in China and lack of space. Many sources tell us that they are not able to place bookings for September as there are no containers available.”

~ Parisha Tyagi, container shipping price analyst, S&P Global Platts


“Shipping costs/freight rates are on the rise and would increase further, so one cannot expect any short-term relief. Rates are likely to continue spiking in the second half of this year, as rising global demand will continue to be met with a limited increase in shipping capacity and disruptive effects of local lockdowns.”

~ Altaf Jamadar – Country Development Manager, Jeena & Company

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