Multiple Ripple Effects from COVID-19 Send International Cargo Shipping Prices Soaring
The COVID-19 global pandemic has impacted individual lives around the world in myriad ways — through social distancing, lockdowns and remote work, to name just a few. In some cases, it has dramatically changed the way we do business. It has also significantly impacted the international cargo shipping industry, sending prices around the world skyrocketing. A range of different factors have contributed to that rising tide in cargo shipping costs, which is not expected to subside in the immediate future.
Let’s start with the simple facts. Before the advent of COVID-19, the cost of shipping a regular 40-foot container from Shanghai to Hamburg, for example, cost around 2,200 dollars. Nowadays, the cost of shipping the same container on the same route is more than three times that, and runs at around 7,900 dollars.
Reasons for Rising Costs
One of the contributing factors to the rising cost of maritime cargo shipping is the reduced number of international flights as a result of travel restrictions and fears of spreading infection across borders. Commercial flights that routinely had been used prior to the pandemic to ship cargo in addition to passengers were canceled in large numbers, significantly scaling back the volume of cargo that could be transported by air. While several airlines temporarily converted some of their passenger planes to cargo planes to help offset their losses, the shortage of airborne cargo space remained high and led to a rising demand for space aboard ships. Naturally, that rise contributed to the spike in maritime shipping prices.
Local lockdowns, rising infection rates, and a range of restrictions produced a second contributing factor to the hike in shipping prices — reduced efficiency in seaports around the world. For example, many port workers had to be absent from work since they contracted COVID-19. That coupled with restrictions on the number of healthy people who were able to congregate in the ports adversely affected the pace of work. Testing and quarantine requirements for the crew members on board the vessels, foreign and local, further added to the general slowdown.
The relatively sluggish pace of work at ports across the world produced a bottleneck that cost ships precious time as they waited in long queues before unloading the goods they were importing and reloading new cargo containers filled with exports. Those delays lengthened the amount of time that a cargo ship would be “tied up,” making any particular delivery of goods arrive later. One maritime consultancy agency, SeaIntelligence, found in a recent study that only half of all ships had unloaded their cargo in their destination ports on schedule in November last year, setting a record low since the agency first began collecting data in 2011.
A secondary side effect of longer spells at sea was a drop in the number of empty shipping containers, which served to drive prices up even higher and produced at times a palpable shortage of available containers.
A World of Unpredictability and Risk
As opposed to the general slow-down in the pace of work at ports around the world, which could be anticipated and factored into projected costs, localized spikes in infection rates in port cities at times resulted in the ports being all but shut down after ships had already set sail for them, adding another element of unpredictability and risk. For example, even if the port in Milan was open and functional when a cargo vessel set sail from Dubai, there was no guarantee that the ship would ultimately be able to dock and unload by the time it had passed through the Suez Canal into the Mediterranean Sea en route to Italy.
Vaccines Actually Driving Costs Higher
The rollout of vaccines in the United States, Europe, the Far East and elsewhere around the world has begun to allow local governments to ease restrictions and to raise productivity somewhat at the ports. That change, while positive in its own right, has failed to alleviate the pressure on the international shipping industry. Ironically, it has actually added further strain, consequently sending shipping costs spiraling further upward. The renewed economic activity facilitated by large-scale immunization has produced a spike in consumer shopping, increasing demand for international cargo shipments.
Strains on Supply Remain, Yet Demand Rising
Despite heightened demand for shipping due to rising consumer shopping, the above-cited factors that have strained the international cargo shipping industry almost to its limit — reduced international air travel, localized lockdowns, slowed productivity at ports, longer shipping times and a shortage of available shipping containers — have remained overwhelmingly unchanged. With that being the case, a single additional development of that kind could be the proverbial straw that breaks the camel’s back, pushing the international shipping industry beyond the brink. For example, if an international shipping route becomes blocked either partially or fully, that is likely to have disastrous repercussions, impacting the international economy. That could happen as a result of military hostilities in the Gulf of Hurmuz, for instance, or if a ship becomes stuck in the Suez Canal, as happened in March this year when a 400-meter cargo vessel ran aground and obstructed the entire canal area for more than six days.
What the Near Future For Shipping Likely Holds
Given the reigning set of circumstances set out above and the scope of global interdependence, the cost of international cargo shipping is not likely to drop in the near future. Each and every one of us will feel that in at least two ways. First, in the rising cost of consumer goods at local retail outlets. The manufacturers, who have been forced to pay in many cases three times more for shipping than just 18 months ago, will pass those costs on to you, the end consumer. Even if some of the circumstances do change for the better, long-term shipping contracts have already been signed at the current prices and will remain in effect for up to two years. Second, the range of goods we can choose from may become more restricted. You should be able to reliably find toilet paper on the shelves of your local grocery store but not necessarily your preferred brand. So, the bottom line is you might not be able to get the softest toilet paper that you may prefer, but at least you’ll have the single-ply, store brand.
Jacob Gitman is the president of Faster Freight Inc. one of the fastest growing international logistics and freight forwarding service providers, offering integrated shipping services by air, water, and land worldwide.
