What does a surge in freight rate translate to for the end-consumer?

During the pandemic, the freight rates for containerised shipment of goods were on a constant high, owing to the lockdowns and non-availability of containers. The issue which earlier only concerned intermediaries like freight forwarders is now becoming worrisome for the end consumers, as surge in freight rate begins to threaten to hike prices of everything from toys, furniture and car parts to coffee and spices.

As per reports, ships are responsible for almost 80 percent of the goods we consume. This makes the shipping rates a major component of trade costs. Almost all the manufacturing good inclusive of clothes, medicines and processed food products, are shipped in containers.

Experts are now of the opinion that the constant rise in the shipping rates are going to have ripple effect that will be felt by most consumers. They believe that many businesses are now unable to take the burnt from of the high rates and are passing them on to the consumers.

The bottlenecks faced by the shippers and the constant rising costs are now hurting the transport of arabica coffee beans, favoured by Starbucks, and robusta beans used to make instant coffee, which are largely sourced from Asia.

Reports suggests that freight costs are more for clunky, low value items like toys and furniture.

As the world is in the midst of making a recovery from the worst global crisis this new hike is likely to put a dent on recovery path and add more of a challenge to the world economy.

Factors causing surge in freight rate

Several factors are at present taking the rates to new highs. And one of the main reasons is the scarcity of containers. Many containers are stuck at routes and there is a minimum production of new one.

Due to this lack of containers on the longer routes the rates of certain regions are skyrocketing. For example, freight rates from China to South America had jumped 443 percent by early 2021, compared with 63 percent between Asia and North America’s eastern coast.

In such a situation, the importer is forced to pay for both the transport and the inventory holding of the containers, which makes it tough for him to bear.

Furthermore, there is a lack of return cargo as it’s costly for carriers to return empty boxes on long routes.

Factors like saturated ports and scarcity of ships and dock workers, is also taking a toll at the freight rates.

This hype in freight rates has left retailers with three choices — either halt trade, raise prices goods or absorb the cost to pass it on later, all of which would effectively mean more expensive goods, Jordi Espin, strategic relations manager at European Shippers’ Council told Bloomberg.

To minimize and avoid such a scarcity in the future the policymakers need to step in and implement reforms that can help make trade much efficient and less costly.

There is a dire need to promote transparency and encourage collaboration along the maritime supply chain. This will improve the monitoring of port calls and liner schedules making trade efficient and hassle-free.

Also, governments must ensure that authorities have the resources and expertise needed to investigate potentially abusive practices in the shipping industry.

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