The pandemic linked to the Covid-19 virus has brought with it many negative consequences in several sectors. The world of international shipping also suffered damage that should not be underestimated, and one of these was the occurrence of increased container shipping costs.
Containers are the main mode of freight transport, as they can hold very large quantities of goods, regardless of type. In addition, they are - or rather, used to be - one of the most economical solutions, as they travel by cargo ship.
Unfortunately, the pandemic has changed the game a bit and container shipments have now become quite expensive. In this article we will try to understand what happened and why the rates remain so high.
Why have tariffs increased?
Containers carry around 80% of the goods we consume. So it is easy to see how much they are used. Consequently, the fact that they are no longer the cheapest, but rather perhaps the most expensive mode of transport has really changed the rules of the international shippinggame.
The first factor that had the greatest impact on this major change was, as anticipated, the arrival of the Covid-19 virus pandemic. But exactly how did this contribute? As discussed in more detail in this article, the main problem was the sharp decline in the presence of containers in the seas, but how did this occur?
Despite the lockdown, some sectors, such as the medical sector, increased the demand forcertain goods. Containers would leave to deliver the necessary goods, but would not return due to labour restrictions and lack of personnel.
This situation caused a continuous accumulation of empty containers in the ports which, in turn, congested the ports forming bottlenecks and slowing down the whole import process. Therefore, with fewer containers available in all trade and according to the law of supply and demand, the occurrence of theincrease in container shippingrates was inevitable.
How long will it last?
According to a United Nations report, the increase in tariffs is expected to continue throughout 2021. This increase will be reflected on businesses and in the end, unfortunately, those who will suffer most will be consumers.
This knock-on impact is due to the fact that individual container tariffs have an impact on the entire global trade. Indeed, almost all manufactured goods (including clothes, medicines and even some food products) are shipped in containers.
Moreover, if about a year after the pandemic the situation was easing - albeit very slowly - in March 2021 there was another factor responsible for thefurther duration of the tariff hike: the case of the Suez Canal.
In fact, after the huge cargo ship got stuck in the channel, blocking traffic again, it caused yet another delay and new economic damage that affected, again, the entire global trade.
High tariffs for container shipments: Other considerations
As mentioned, shipping rates are a very important component of trade costs. The new increase therefore represents to all intents and purposes a new and additional challenge for the entire world economy, which is still struggling to recover from the Great Depression.
The decline in container presence that occurred during the pandemic is to be regarded as unprecedented. However, contrary to expectations, although there has been a shortage of physically available containers, demand for them has increased due to changes in shopping patterns triggered by the pandemic. Think, for example, of the demand for new home stations for smart-working, or new medical equipment to treat Covid patients.
In addition, another reason for the continued accumulation of empty containers is theincrease in maritime trade flows. Indeed, some governments have eased blockades and passed national stimulus packages to help businesses recover, which in turn, have stockpiled them in anticipation of new pandemic waves.
However, according to the policy document that emerged from theUnited Conference on Trade And Development ( UNCTAD ), the increase in demand was greater than supply could meet, and so, again, that is why this situation developed.
Furthermore, as all operators in the sector such as couriers, ports and shippers were caught by surprise, they left empty containers in unsuitable locations and without planning for repositioning. Forecasts include a change in business models and general imbalances including management difficulties and further delays at ports.
How to avoid a similar situation in the future?
UNCTAD's document was also intended to promote solutions to avoid the same situation occurring in the future. It therefore highlighted three issues:
- Advancing trade facilitation reforms: Governments should implement reforms that make trade easier and cheaper;
- Improved monitoring and forecasting of maritime trade: Policy makers should promote transparency and encourage collaboration along the maritime supply chain. The aim should be to improve the way port calls and schedules of ships are monitored;
- Strengthening of national competition authorities: these authorities should ensure that they have the necessary resources and expertise to investigate abusive practices in the maritime transport sector.
The organisation has also implemented a 10-point action plan to keep ships moving, ports open and trade active. In addition, by joining with the UN regional commissions they aim to help developing countries speed up these reforms so that trade can recover as quickly as possible.