Shipping costs quadruple to record highs on China-Europe ‘bottleneck’

Shipping costs quadruple to record highs on China-Europe ‘bottleneck’

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Soaring prices are being fuelled by a shortage of containers and a recovery in consumer demand.

After demand for Asian-made goods rebounded in the second half of 2020, competition among shippers for available containers sent freight rates soaring!

The cost of shipping goods from China to Europe has more than quadrupled in the past eight weeks, hitting record highs as a shortage of empty containers stemming from the pandemic disrupts global trade. The cost of shipping a 40-foot container from Asia to northern Europe has increased from about US$2,000 in November to more than $9,000, according to shippers and importers.

These rates are being driven by customers fighting over limited containers. Thousands of empty containers were left stranded in Europe and the US in the first half of 2020 when shipping lines cancelled hundreds of trips as coronavirus lockdowns caused a sudden slowdown in global trade.

Congestion at ports is also contributing to higher prices, with shipping lines charging extra fees to compensate for longer waiting times. Container freight rates have soared and since November the cost of shipping to Europe has been exacerbated by the diversion of containers to trans-Pacific routes.

By contrast, the cost of shipping from China to the US has plateaued since October, when the Chinese government asked shipping companies to cap their rates. Some businesses were being charged $12,000 per container, up from about $2,000 in October. There were also reports of increases in shipping costs of up to 300% since the start of 2020, including cases where the increase in cost of shipping is greater than the retained profit from the goods, meaning these costs will have to be passed on to end users.

The question is, do you pay the $12,000 now and pass those prices onto customers or wait and risk stocks drying up?

The disruption and delays are beginning to affect global supply chains, signs of strains are building up and the pressure was expected to intensify before it eases. A recent survey by IHS Markit found that, in December, Eurozone manufacturing suppliers’ delivery times reached the worst levels since the height of pandemic-related lockdowns last April.

Shipping lines hope the slowdown in Asian manufacturing that typically accompanies the lunar new year in February will allow carriers to tackle the growing backlog of orders and lead to at least a temporary cooling of prices. Container shortages were likely to continue long into 2021 despite carriers recently placing new orders for containers, which may be too little, too late.

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