Shipping during COVID-19: Why container shipping rates have increased – KBC


In March when a given megaship blocked traffic in the Suez Canal for nearly a week, it led to a new increase in container shipping rates, which eventually began to stabilize from higher levels of time reached during the COVID-19 disaster.

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The United Nations Conference on Trade and Development – UNCTAD has explored the underlying causes of the severe shortage of containers hindering trade recovery, and how to avoid such a situation in the future.

Transportation rates are a major part of business costs, so the new rise poses an additional challenge to the global economy as it struggles to recover from the worst global crisis since the Great Depression.

“The Ever Given event reminded the world how much we depend on transportation,” said Jan Hoffmann, head of UNCTAD’s trade and logistics branch. “About 80% of the products we use are shipped by ship, but we easily forget this.”

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Container rates have a significant impact on global trade, as almost all manufactured goods – including clothing, pharmaceuticals and processed food products – are shipped in containers.

“The waves will hit many consumers,” Mr Hoffmann said. “Most businesses will not be able to bear the burden of high standards and will pass them on to their customers.”

A new summary of UNCTAD policy examines why shipping rates have increased during the epidemic and what can be done to prevent such a situation in the future.

Figure 1: Shanghai freight index, weekly spot rates, 18 December 2009-9 April 2021

Container levels of container
Abbreviations: FEU, equivalent unit 40 feet; TEU, equivalent unit 20 feet.
SourceUNCTAD calculations, based on data from the Clarkons Survey, Clock Network Clock Network Time.

Scarcity that has never happened

Contrary to expectations, demand for container shipping has grown during the epidemic, slowing back rapidly from the previous decline.

“Changes in consumption and procurement styles caused by the epidemic, as well as increased e-commerce, as well as closure measures, have in fact led to increased demand for imports of manufactured consumer goods, much of which is being transferred to shipping containers, “The UNCTAD policy summary states.

Maritime trade intensified as other governments reduced locks and approved national parcels, and traders were overwhelmed in anticipation of new waves of the epidemic.

“The increase in demand was stronger than expected and did not meet the adequate supply of transportation capacity,” a UNCTAD policy summary states, adding that the subsequent shortage of empty containers “has never occurred.”

“Carriers, ports and shippers were taken by surprise,” it says. “Empty boxes were left where they were not needed, and repositioning was not planned.”

The underlying causes are complex and include changing trade and equity systems, capacity management and carriers at the beginning of the crisis and the ongoing delays in COVID-19 in the interconnection areas, such as ports.

Rates for regions that continue to increase

The impact on shipping rates has been greater on commercial routes for developing regions, where consumers and traders can afford them.

Currently, South American and West African standards are higher than any other major trading area. By early 2021, for example, shipping rates from China to South America jumped 443% compared to 63% on the route between Asia and the east coast of North America.

Part of the definition lies in the fact that the route from China to Latin American and African countries is often long. More shipping is required for weekly service on these routes, meaning that many containers are also “stuck” on these routes.

“When an empty container is scarce, the importer in Brazil or Nigeria must pay not only for the full container shipping but also for the cost of holding the empty container inventory,” the policy statement states.

Another reason is the lack of return loads. The states of Latin America and West Africa import more manufactured goods than those exported, and it is costly for carriers to return an empty box to China on the long haul.

How to avoid future shortages

To help reduce the likelihood of such a situation in the future, UNCTAD’s policy briefly addresses three issues that need to be addressed: developing business empowerment reforms, improving maritime trade monitoring and forecasting, and strengthening national competition authorities.

First, policymakers need to implement reforms to make business easier and less expensive, many of which are set out in the World Trade Organization Agreement.

By reducing the physical contact between workers in the transportation industry, such reforms, which rely on modern commercial methods, would also make supply chains more stable and protect better workers.

Shortly after the collision with COVID-19, UNCTAD issued a 10-step plan to keep migrating ships, ports open and trade flowing during the disaster.

The organization has also joined UN regional commissions to help developing countries accelerate such reforms and address the trade and transportation challenges posed by the epidemic.

Second, policymakers need to promote transparency and encourage cooperation in maritime supply to improve how port phones and liner schedules are monitored.

And governments must ensure that competing authorities have the resources and expertise needed to detect potentially degrading practices in the transportation industry.

Although catastrophic state of affairs is at the heart of container shortages, some carriers’ strategies may have delayed the re-installation of containers at the beginning of the crisis.

Providing critical oversight is a further challenge for authorities in developing countries, who often lack resources and expertise in international logistics.

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