October 22, 2020: The cost of shipping goods from Asia to the US has soared in the past month as American companies seek to restock depleted inventories ahead of the holiday season and prepare for the pandemic to worsen over the winter.
Container shipping lines had cancelled hundreds of sailings in the early months of the pandemic as countries around the world closed their borders and global trade slowed. But the reinstatement of services has yet to restore balance in a market responsible for about 90 per cent of global trade.
Long term rates to the US west coast jumped by 12.7 per cent over the weekend following a 37.2 per cent increase on October 1 — the biggest overnight jump since 2015, according to international shipping association Bimco. Prices now stand 63.4 per cent higher than on the same day in 2019.
Prices from Asia to the east coast, meanwhile, are 25 per cent higher than this time last year.
The sharp rise in rates is being driven by high demand for a wide range of Asian-manufactured goods in the US, where inventories are now at their lowest levels since 1990 as a result of shocks to supply chains earlier in the year according to David Kerstens, an analyst at Jefferies.
“Chinese production was virtually out of service during the spring and demand in the US for ecommerce in particular has gone up since then as people spend less on services because of the pandemic,” he said.
The country’s GDP grew 4.9 per cent year on year in the third quarter — a recovery from a historic decline at the start of 2020 — and exports have risen for each of the past four months, adding 10 per cent last month, their fastest increase in 2020.
Though long term shipping rates to the US coasts have risen sharply in recent weeks, they still lag far behind equivalent spot rates. In September, the Chinese government met major carriers to demand they keep prices in check.
Wary of potential breaches of competition standards, the US Federal Maritime Commission has warned that it “has heightened its scrutiny of markets, individual ocean carriers, and the three global carrier alliances in response to the unusual circumstances and challenges created by the Covid-19 pandemic”.
“The volatility explains the change in negotiation power very clearly — shippers suddenly were in a rush to secure cargo so had to accept higher prices,” says Peter Sand, an economist at Bimco.
Restrictions on port activity plus fewer flights earlier in the year have also made it difficult for ships to change their crews, leaving hundreds of thousands of seafarers stranded.
In September, Fidelity, the asset manager, called on companies and governments to tackle the issue of getting crews home. If no action is taken, the Australian Maritime Safety Authority warned, the industry could “grind to a halt”.
The staffing problems and shortages of empty containers at terminals have combined to push prices much higher than usual, according to Roberto Giannetta, head of the Hong Kong Liner Shipping Association.
“The way to deal with this for the shipping community to be able to meet the demand . . . is to increase the rates,” he said. “That’s why the rates are really at high levels”.
Source: Financial Times