The reasons behind rising freight rates and their economic impact.
Container transport, the backbone of global trade, continues to show great uncertainties. In the following lines we will try to explain the current situation and the factors driving these increases.
Major disruptions:- Pandemic. Covid 19
- MV EVER GIVEN incident. Blockade Suez Canal
- Congestion, China COVID 0 policy & US ports collapse, especially Long beach, Los Angeles.
- Shortage, lack of containers where they are needed. Increased freight times (increased container dwell time on ships).
Political and geopolitical tensions and their consequences.- BREXIT
- RUSSIA-UKRAINE
- ISRAEL-PALESTINE.
- Bad Al-Mandad Straits attacks forcing the circumnavigation of Africa. Completely rearranging all maritime trade routes created decades ago. Increasing transits by 10-21 and isolating the eastern Mediterranean.
- Climate risks, Panama Canal.
Increased security, increased customs controls and sanctions.
- European Union Emissions Trading System (EU ETS). Recall that this is a tax on CO2 emissions that shipping companies must pay if they operate in the European Union.
Currently, the main reason is the crisis in the Red Sea, where attacks on cargo ships have forced shipping lines to divert their routes, significantly increasing operating costs. All this has led to a re-ordering of routes resulting in:
- Increased freight times (not only increasing transits and container dwell times, but also the associated costs).
- Congestion in key ports creating bottlenecks that delay the movement of goods.
- Container shortages due to the imbalance caused by increased transit times.
- And, increased operating costs resulting in higher transport prices.
Future prospects
In the short term, in the Far East-Europe trade, container freight rates are expected to remain high due to persistent demand and capacity constraints. However, we are starting to see SPOT rates level off in August. While costs remain high, spot rate increases are decreasing, suggesting that prices are approaching their peak and may start to ease.
So before the summer holidays begin we can be optimistic that advance booking times have reduced by an average of four weeks to three weeks, perhaps the extra capacity coming in, we hope we are not wrong, although we cannot 100% confirm that the tide has turned either. We should note that a number of supply side factors need to come into play, along with a weakening of the recent high demand. Recall that alliances continue to operate at reduced capacity, due to longer route times. Such limited space will continue to mean that fares will remain high.
On the other hand, it is other routes that are affected by strong increases, namely the connection between Europe and the American continent. According to shipping lines such as MSC, this increase is due to the strong demand from the old continent to Central and Latin America.
In conclusion, container transport continues to be in a situation of complete uncertainty and with a significant increase in prices on average in recent years compared to pre-pandemic times. At Bestway we will continue to work on innovative and collaborative solutions that allow our customers to obtain the best options on the market for maritime transport.
*This article has been automatically translated from its Spanish version.
