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Shipping costs show no sign of abating yet

by Başak Ceylan -
  • 14/04/2021 (03:47)
Shipping freight costs have been rising steadily since November 2020, supported by a combination of factors, including a faster-than-expected recovery in manufacturing demand, first in China and then across the globe. With the second quarter well underway, the rally in freight costs seems likely to extend into the second half of 2021.

Rapid rise in consumer spending sends freight rates skyward

Manufacturing demand has been recovering strongly, reflecting soaring commodity demand amid stimulus packages and relief measures in the US, and the recovery in China. On top of this, supply chain disruptions, such as the container shortages and port bottlenecks, have driven freight rates skyward –and the recent reports spell little relief from through-the-roof freights costs.

Recent reports show that the rally is far from over

According to Bloomberg, new annual contracts signed by US importers show increases of 25% to 50% from a year ago. Analysts believe that this might be a clear indicator that container prices from China to the US or European ports will remain elevated and even increase further over the near-term.

Suez Canal disruption impacts supply chain recovery

Shipping experts also pointed out that the knock-on effects of the Suez Canal blockage could impact freight rates, as its temporary closure has intensified bottlenecks. According to a statement made by Maersk, the world’s biggest shipping company, delays across the vessels, port and terminal backlogs may last well into May this year.

The backlog of more than 400 ships that built up around the Suez Canal after the grounding of the 224,000-ton Ever Given has been largely cleared. However, experts warned of a surge in traffic as ships started to reach their designated container ports. Although freight rates were expected to decline following the Lunar New Year holiday, the domino effect of the Suez Canal blockage has sent costs to new highs for certain routes.

Normalization may take longer-than-expected

The international credit rating agency Fitch Ratings pointed out in a commentary that supply delays have reached record levels in recent days. However, the agency said that it expects these supply bottlenecks to ease in the second half of 2021.

A Turkish logistics company has also commented on the subject, saying that high freight rates and equipment shortages seem unlikely to resolve by the first half of the year. “Some regions may see a certain amount of relief but several players foresee the current circumstances will stretch well into the end of 2021, or even the first quarter of 2022,” the company said.
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