Global cargo shortage: How iron boxes became money magnets.
Cost of shipping goods
The cost of shipping goods from China to Europe has increased more than a six-fold, hitting record highs as a shortage of empty cargo containers and Russia’s invasion of Ukraine disrupts global trade.
The cost of shipping a 40-foot container from China to Europe has jumped from around $2000 (£1500) a year ago to more than $15,000 in January, according to the figures from shipping data and analytics company Xeneta, before correcting to $11,00 at the start of July.
Shipping costs soared
Shipping costs soared as consumers unleashed pent-up savings to buy merchandise while the pandemic continued to disrupt the world’s supply chains.
“All off the sudden, people started buying a lot of cargo mid-pandemic and the problem now is that those containers are in the wrong places of the world. They are in Europe and in the US and not back in Asia,” Xeneta CEO Patrik Berglund told Yahoo Finance UK.
Thousands of empty containers were left abandoned in European and American ports in the first half of 2020 as COVID caused international trade to collapse.
When demand rebounded, freight rates soared as smaller companies had to fight tooth and nail to secure space on container ships.
“Imagine you had $30,000 in cargo and your profit margin is 20%.That’s a $6000 profit but if your rate goes up from $2000 to $15,000 that margin is gone,” Berglund said.
Businesses have already started passing on the bill to customers amid the supply crunch.
“Some have already increased [prices]. Building materials costs are substantially higher and there is a real fear of inflation since everyone needs to jack up their prices,” Berglund said.
“Some commodities don’t even move anymore,” he added.Global supply chain disruption and ships not taking away empty containers caused a hike in prices as international trade resumed.
UK’s Association of Manufacturers
The UK’s Association of Manufacturers of Domestic Appliances has reported cost increases of up to 300% since the start of 2020, with cases where the rise in cost of shipping is more than the profit from the goods. It warned that these costs would have to be passed on to customers.
“With spot rates remaining high, and port conditions unlikely to improve in the short- to medium-term, price inflation will likely increase,” Josh Brazil, SVP of supply chain insights at project44, told Yahoo Finance UK.
IKEA announced it was raising its prices by an average of 9% as it faced increasing costs in transport and raw materials.
The world’s biggest furniture brand said it was leasing more ships, buying containers and re-routing goods between warehouses to mitigate supply chain disruptions but said it was now forced to pass the costs onto customers.
British Glass, the trade body for the UK sector, warned that supply chain disruptions and soaring energy prices meant that the production cost of a jam jar or a beer bottle was beginning to outstrip the value of the product itself.
Turbulent waters ahead
Now that the spread of the Omicron variant has mostly passed, the shipping industry is on edge with Russia’s invasion of Ukraine.
Danish shipping giant Maersk (MAERSK-B.CO), Switzerland-based MSC and France’s CMA CGM all announced that they would no longer take bookings for goods from Russia and were suspending most deliveries to the country.
Citing the impact of sanctions, “bookings to and from Russia will be temporarily suspended, with exception of foodstuffs, medical and humanitarian supplies”, Maersk said in a statement.
MSC announced similar measures, saying it would “continue to accept and screen bookings for delivery of essential goods”.
CMA CGM said its “utmost priorities remain to protect our employees and ensure as much as possible the continuity of your supply chain”.
“In the interest of safety, the group has decided to suspend all bookings to and from Russia as of today and until further notice, it said in a statement posted on its website.The world’s three largest container shipping lines have all temporarily suspended non-essential bookings to and from Russia.
Russian and Ukrainian ports on the Black Sea
Out of approximately 44,000 cargo and tanker vessels operating in the world in the last two years, approximately 2,000 are owned by companies registered in Russia, according to marine intelligence firm Windward.
“If you take into account port calls of Russian flagged and Russian owned vessels into the UK and US as well, you get to more than 18,300 port calls in the last year alone. Taking these vessels out of the market will most certainly cause trade flow changes and disturb the importing and exporting of cargos and goods from/to Europe,” the firm said.
Russian and Ukrainian ports on the Black Sea are big export hubs for wheat, corn and crude oil. Russia is the world’s largest supplier of wheat and Ukraine accounts for around 12% of global wheat supply and about 16% of global corn exports.
Together, the two countries also account for 80% of sunflower oil, which is used in food processing.
Most European ports have stopped handling containers coming from or going to Russia.
“While the foreseeable future seems to be uncertain in many ways, it is safe to assume that the supply chain in general, and the ocean freight market in particular, is not returning to a pre-pandemic normal any time soon,” the firm said.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe
Source: UK Finance
