Extraordinary increase in transport costs, is the turning point at the end of the year?

Following the recovery trend of the global economy, the freight market from spring 2021 has restarted with full force, in particular the container transport, after a very negative year, characterized between April and June 2020 by a decline of about 20 % of global transportation capacities due to the impact of the Covid-19 pandemic.

However, this restart is characterized by an extraordinary increase in costs: just think that the price of transporting a standard 40-foot container between Shanghai and Genoa has risen by 545% on an annual basis, reaching a cost of $12,761 at the end of July 2021, while the average composite index measured by the World Container Index rose to $8,883. Only the route between Shanghai and Rotterdam has undergone a greater increase (+ 640%) among the reference ones. (source: www.drewry.co.uk).

As is understandable, the soaring prices of container freight rates cannot be a secondary aspect in the cost structure of companies, which have often in turn sold their goods based on a reasonable estimate of transport costs based on the historical trend of the same, which proved tragically unreliable.

To give an example, in January 2021 an Italian tile manufacturer had to pay around 12,000 euros to ship a container to the Far East, while a year earlier he would have spent only 3,000, having to pay 9,000 euros more than expected to deliver.

Of course, the current transport economy cannot ignore containers and maritime transport, since land transport and even more so air transport are relegated to a complementary role.

And the cost of freight rates is a rapid “thermometer” of the state of the economy, so much so that in 2009, when large container ships were idling in ports, the prices to transport a container from Asia to Italy had dropped below 300 dollars.

Now we are witnessing the opposite phenomenon, linked to the explosion in demand and the strong recovery in fuel prices, with crude oil at the highest levels for two years and a scarce availability of containers themselves: a circle that keeps turning, given that the China is the only global producer of this product, and production has stopped for a full year due to lack of demand. Now the demand for containers has restarted, but the high price of raw materials pushes up that of the containers themselves.

Today even transporting empty containers from the remittances where they are stored to the Far East ports where they are used and loaded with goods has a significant cost.

Those who are at the center of the various supply chains, in particular those who buy raw materials from the East, bear the increased transport cost, and sell the finished product in the West on the basis of contracted prices on a multi-year basis, are the ones who pay the most, or in any case without being able to transfer, if not minimally, the transport costs to the final customer.

The reasonable hope is that the global logistics system will tend to rebalance in the coming months and analysts do not foresee that there will be further price hikes.

In any case, it is common opinion that not even the construction of new generation ships, equipped with ecological propulsion, and of a new more efficient generation of containers, will be able to bring freight costs back to pre-Covid levels, if not in the long term.

This means that the problem of intercontinental transport will increasingly be an issue to be tackled on a shared basis, to ensure greater cost stability and avoid chain economic shocks.