Container shipping rates are on the rise again, driven by relentless consumer demand and corporate replenishment from Europe to the U.S., which are straining the global economy’s capacity to move goods through the shipping lanes.
After peaking in late 2020 and moving little through the first quarter, the rate for a 40-foot container to Los Angeles from Shanghai hit $4,403 last week, the highest in Drewry World Container Index data since 2011. Shippers on less-frequented transatlantic routes are also feeling the increase – Rotterdam to New York soared to a record $3,500.
With their fiscal and monetary floodgates wide open, countries with advanced vaccination programs are countering the headwinds of Covid-19-generated unemployment, weak service industries and restricted travel. But the stimulus wave driving consumption has swamped the supply side: manufacturers of goods that often rely on global supply chains.
Last year, the rise in ocean freight rates was initially seen as a short-term reaction to a historic demand shock in the early stages of the pandemic. Now, it appears that continued high rates and increased capacity may be extended for a second year as the global economic recovery gains momentum.
“I don’t expect freight rates to return to pre-crisis lows, at least not soon,” said Jochen Gutschmidt, a former executive at Danish container carrier A.P. Moller-Maersk A/S and Switzerland’s Nestle SA, now vice president of global supply chains at Sea-Intelligence in Copenhagen.
Any hope of a return to more normal conditions this year was dashed with the grounding of the Ever Given, which paralyzed traffic through the Suez Canal for nearly a week in late March.
Ports are “stretched to the limit”
“Imagine you have a machine running at 100%, with everything squeezed to the max, and then it starts to poke holes: the Suez Canal, ship congestion or Covid cases in dockworkers,” said Patrik Berglund, CEO of Oslo-based Xeneta, an ocean and air cargo market analysis platform. “All of this, with machinery at full throttle, is creating massive disruptions.”
Although the Suez blockade ended weeks ago, it may take four to six more months to resolve all the operational disruptions it caused to ship operators and ports, according to Lars Jensen, managing director of Vespucci Maritime in Copenhagen. Adding to these supply chain problems is strong consumer demand, which shows no signs of abating.
“We’re not seeing inventories building up, so all this cargo moving to the U.S. is actually being sold,” Jensen added . “That’s another indicator that the boom is not about to end.”
U.S. container imports on transpacific routes were up more than 50% in March compared with March 2019, and April and May volumes may be even higher, said Nerijus Poskus, vice president of global ocean at Flexport, a San Francisco-based freight forwarder.
Rates for May sailings are “skyrocketing,” with some offers topping $10,000 per container and a few reaching $15,000, he said. Missing from the widely quoted rate indexes are the hefty premiums carriers charge to guarantee delivery or reduce the wait.
To shorten the trip through congested U.S. ports, some shippers have diverted cargo through Colombia or by loading on different ships around Panama, Poskus said, “but those options are gone.”
Most logistics experts agree that the situation cannot remain irregular, but there is a growing sense that relief could come around 2022. these assumptions are simple guesses.
Shipping rates through 2021.
“There is an expectation that very strong conditions will last through the end of the year, maybe even into the summer, probably into the fall and maybe through the end of the year,” Brian Sondey, chief executive officer of Bermuda-based container leasing company Triton International Ltd. said on an earnings call last week. “Bets are pointing to late this year or early next year, when the trade world starts to get back to normal, but that’s just a guess.”
One way to ease the tensions swirling around capacity is to build new ships, and orders for containerships rose by 50 during April, the most since 2007, according to data released by IHS Global. However, they take several years to build.
A faster way to add capacity is with additional containers, and Triton is ordering $2.6 billion of them this year. The new containers cost about $3,500 each, according to Sondey, up from $2,500 in November and more than double the $1,600 they cost in 2019.
Carriers are also investing in more equipment: Maersk said it is adding 260,000 20-foot-equivalent units, or TEUs, by the end of this quarter, Germany’s Hapag-Lloyd AG is ordering 150,000 and France’s CMA CGM SA will have introduced 250,000 by July.
The global container fleet is forecast to increase 5.8% to 45.7 million TEUs this year, according to John Fossey, Drewry’s head of container equipment research and leasing. That’s up from a 1% increase last year and nearly double the projected annual increases from 2022 to 2025, he said.
The additional boxes can’t come fast enough.
Separately, European Central Bank researchers said all the supply difficulties will delay, but not derail, the global recovery. “As shutdowns are lifted and consumers rebalance their spending toward services, some easing of current supply bottlenecks should be expected, with knock-on effects on shipping costs,” the researchers said.