Shipping rates being a major component of import and export costs is an important factor in global trade. The Covid19 crisis has hit every sector of the economy including the shipping industry taking freight rates to new heights.
From an initial slow down the demand for container shipping has only increased.
Since the last eight months, Container shortages and rising freight rates have become the new challenge in supply chain management impacting largely the Agro sector as agricultural commodities largely ship in container vessels, causing loss of business in global trade.
In European & American markets freight prices have increased by over 100% and 200% in American West coast & UK since last quarter. Reportedly, In India where the cost of 40 feet containers was USD, 4,000 have now reached over $10,000.
The Platts Container Index was assessed at $4,495/FEU, 3.5 times higher than the previous recording, Reported S&P Global.
Due to higher costs, bulk purchases in the Asian sugar market were largely impacted as according to traders it had become more challenging in absence of refined sugar buyers with the flexibility to switch to break bulk shipments. A 25000 mt handysize vessel from west coast India to Jakarta now costs $45-$60/mt, up from $20/mt last year.
Other than the obvious reason for the Pandemic various factors supported this factor such as increasing demand of shipments with separate transporting items gathering more space, The more the shipments the higher the shipments cost. Increasing demand followed by shortage of containers also remained a factor for this situation.
Brexit has also contributed to this scenario as the UK had to give up several subsidies the freight rates from the region have increased.
On the other hand, the demand from China is on a continuous rise even countries are agreeing to bear the inflated costs to purchase from China. These factors combined have given rise to the rate rise scenario in the shipping industry.
According to UNCTAD, to avoid this kind of situation in the future attention has to be given to three major issues i.e Advancing trade facilitation reforms, where policymakers need to take action to make trade easily accessible. Improving maritime trade tracking & forecasting, by promoting transparency and collaboration in the maritime supply chain. Lastly, strengthening national competition authorities by ensuring they have resources to investigate any malpractice in the industry.