Industry experts are saying there are 5 reasons why the price is in the high level.
- Since Covid started to impact everything in early 2020, it also created problems of imbalance in production and demand for products. Countries locked down and opened in different periods create unstable and unpredictable supply. Many industries such as seafood, fruit and vegetable, and other perishable products were damaged from the lock down. Shipping companies cut capacity and there was a shortage of empty containers are making the supply side getting worse. On the other hand, when the situation recovered, the global demand returned especially for consumer products and general international trade. Therefore, the ocean freight capacity became tight as the economies opened up further and businesses started to build up inventory.
- The alternative of ocean freight is very limited which means it’s difficult to avoid surging transport costs. For some items such as high value products, it’s possible to ship by air, train or even truck. However, suppliers of commodity products, seafood and other food products have fewer choices since the value of the products is not high. Sometime, the exporters (or importers) need to pay premium rate for vessel space to avoid the inventory shortage.
- Ocean freight capacity is not expanding while the export volumes from some countries is going up. Some countries are already exporting more goods than they did before Covid. International trade seems to rise further not only from major trading countries but also their partners. The online shopping is one of the reason of the booming. There are new exporters emerging every day. Goods are sent from across the world easier than before when the customers can explore the items worldwide with more choices of supplier.
- Many major shipping routes have recovered but blank sailing (cancelled port calls) have reduced capacity by around 10%. Shipping company are trying to reduce blank sailing. In this quarter, it might reduce by 4% which still leaves a big deficit.
- Port congestion is another big problem which causes delays and cancelations. Shipping performance in 2021 has carried on where 2020 left off, in terms of lower numbers of vessels keeping to schedule, and average delays for late vessels rising.
There is no sign of recovery in the short period of time. Some sources have advised the situation could be last as long as summer 2022. Most of the liners are running with almost 100% capacity therefore if there are small problems such as accidents and mishaps, it can have a massive effect. The recent report shows that there are around 65 ships are piling up at the Californian gateways of Los Angeles and Long Beach. It is a significant sign since the California ports are responsible for almost half of all US imports. If all the situations couldn’t be resolved, there is a chance of transportation price between the US and Asia could jump up more than 500% from this time last year. The worst thing is there is someone need to pay for this. If the company is big enough and already make a good margin on their items, they might take some pain. But if the company is small and the product make a thin margin, it most likely the transportation cost will push to the customer so the product price will rise – which we already seen some company already raise their price to offset the transportation costs.