We have all seen the huge increase in Freight prices over the past two years due to many colliding factors and I think we are now starting to see these price rises reflected in the high street and elsewhere in our communities. Freight rates on the very busy Asia to Europe trade lane have soared from an average of around US$ 2400 per 40’ container for the past 10 years to an incredible $17,000 to $ 18,000 per 40’ in recent months. The initial increase came on the back of the long Chinese Covid shut down straight after Lunar New Year in 2020, the reality of the additional down time in China was a 6-7 week halt in production meaning that when factories did re-open the order books were not only full but also very far behind. The resultant onslaught of shippers in China trying to get space meant that demand started to outstrip supply at an alarming rate. At the same time port operations globally were suffering after introducing new regimes to minimize the risk of spreading Covid. Their capacity to handle boxes dropped quickly meaning that ports started to get overwhelmed with empty containers that could not be loaded out fast enough. Vessels were either being turned away from ports that were heavily congested or cutting and running with cargo aboard that should have been taken off. These same issues were being replicated in other large China export markets such as the USA and when you put these factors together you get the perfect storm for container shortages back in China. To pour fuel on an already out of control fire the governments of the world started to impose lockdowns in their respective countries which may have curtailed certain activities for people, however it also seemed to spurn an unprecedented amount of online spending as people looked to substitute other activities with the mass buying of consumer goods to keep themselves and their families entertained in difficult times.
We saw last summer that there were price increases with large bulky items such as garden furniture which is predominantly imported from China and SE Asia, after all you don’t fit too many garden furniture sets in a container and as the freight increase for one container was up to US$ 15,0000 the importers had to pass on the uplift to survive. Many other UK importers at this time held their nerve and sucked up the increases as a hit on their P&L, after all it would all be over in a couple of months wouldn’t it? Unfortunately this was not to be, as soon as we saw the first drops in Freight rates the Ever Given ran aground in the Suez Canal creating another back log of vessel and delays in containers getting back to source, and you guessed it, the freight rates started to fly back to where they had just been. Although there has been some recovery of port infrastructure and working patterns there are still many major issues globally and ports are not working as efficiently as they were two or three years ago, in addition it is well publicised that the shipping lines who move global trade are operating their worst schedule reliability since records began, at the same time as recording the most significant profits they could had ever dreamed of. This fact has not gone un noticed by importers and exporters and is a very raw bone of contention between them and the shipping lines. Governments have been asked to intervene and global organizations have been asked to investigate pricing structures and possibilities of collusion etc., however at this time it seems as though this will not prove useful in driving down pricing as it is very clear that the driving factor is supply vs demand, an economical principal as old as the dawn of time and one by which all of our global financial markets are built on and work by, so tearing down this in the case of global shipping would be tantamount to a global violation of government power, unless someone finds proof of any wrong doing.
The latest events to keep the freight pricing high are the temporary closures in Chinese post such as Shenzhen & Ningbo in recent months as well as similar issues in Qingdao. These seem to have been handled fairly effectively by local authorities, however they still have a destabilising effect on a recovery of the shipping industries ability to serve their users in an efficient manner, and therefore to start to reduce freight pricing to more agreeable levels. One of the biggest knock on effects of this apart from difficult decisions for importer and exporters in what they do with their own product pricing has been finance. We started to see the pattern of what was unfolding in the market as early as March 2020 and realised that we needed to underpin our own business moving forward even though we were in a very strong position already. The exponential growth in freight prices had to be met with meticulous planning and pragmatic discussions on how as consolidators, our clients and suppliers could all work to help each other navigate what was coming. We have been very successful to this end and stand in an incredibly stable position capable of assisting our clients through this time. We would encourage any clients who have not already done so to work on forecasts and projections with the current level of freight prices being the new normal as a worst case scenario. If on paper this looks tough then difficult decisions have to be made with their own clients with regards to pricing. Now is also a great time to talk with banks and finance companies with regards to financing options, particularly while the government are offering backed funding options through many of these institutions. You can never be too ready for what lies ahead!
There are some hopeful signs with freight rates holding at current levels from most areas in recent weeks and only very small increases coming in for others. The next natural break when freight rates usually start to slide is after CNY 2022 (1st February to 14thFebruary), it will be very interesting to see what happens from now to then and after CNY and how many other catastrophic events can happen to disrupt the chances of reducing rates, as I am sure that we are all due a good slice of luck in the near future!