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Five Reasons of Constant Rising Ocean Freight

Since the autumn of 2020, the shipping cost of household products has been growing strongly, but in the first few months of this year, the freight rates of dry bulk and containers on significant trade routes have seen new surges. Compared with last year, the freight rates of several trade routes have tripled, and the charter prices of container ships have also seen a similar increase.


There is almost no sign of relief in the short term, so freight rates may continue to rise in the second half of this year because the growth of shipping capacity is limited, the destructiveness of local lockdown continues to have an impact on the market, and the growing global demand still cannot be satisfied. Even if the new capacity is added, the liner company will manage the fleet more actively, and the freight rate will remain higher than before the epidemic.


Ⅰ. Continued global imbalances have further pushed up prices 


Problems that have accumulated since the epidemic's beginning, including 


1. Imbalance in the production and demand of goods. 


2. Lockdown and opening of various countries at different times. 


3. Shipping companies cut the capacity of major routes. 


4. There is a shortage of empty containers. With the gradual recovery of the economy, global demand has become more assertive, especially in the shipping industry, which is most closely connected with international trade in goods. With the further opening of various economies and the rebuilding of inventory in all supply chain links, the shipping capacity requirements have become even higher.


Ⅱ. In addition to shipping, there is almost no other alternatives 


Lack of alternative shipping options means that it is currently challenging to avoid soaring transportation costs. For products with higher value, such as electronic products, other methods such as air or train can usually be selected for transportation. However, the current capacity is limited, and freight rates have also risen sharply. For shippers of low-value products such as household products, toys, promotional items, or T-shirts, the proportion of shipping costs in purchasing costs has risen from about 5% to more than 20%, which also means that consumers may begin to feel the impact of price hike or product supply changes.


Ⅲ. The unbalanced global recovery in 2021


The level of merchandise exports in some countries has exceeded that before the outbreak of the epidemic, while in other countries, such as the United States, the level of exports still lags behind the overall output level. Trade-in goods will grow further, not only in these significant trading countries, but other trading partner countries will also continue to recover. As the requirements for shipping capacity will continue to exist, the unbalanced global recovery will continue to exacerbate some of the problems of world trade, including "displaced" empty containers, which will put more significant pressure on freight rates in the short term.


Ⅳ. Reducing blank voyages will help ease capacity restrictions on a global scale


The capacity of marked routes for household products has returned to the level before the 2020 lockdown, although the blank voyage in the first quarter has reduced the planned capacity by 10%. There are signs of improvement this quarter. According to the current fleet plan, the number of blank voyages is 4%. However, the cancellation of the journey is, to a certain extent, a reflection of the delay, which is forced to be canceled. Therefore, although the transportation system is still tight, a small amount of capacity may still be reduced in a short period to deal with delays.


Ⅴ. Continuous delays are caused by port congestion and closure


Just like the link between voyage cancellation and voyage delay, congestion is part of the problem. The shipping performance in 2021 continues the situation in 2020. The proportion of ships sailing as planned has decreased, and the average delay time of overdue vessels has increased. There are signs that the performance of boats will improve because the proportion of ships arriving on time has not declined, and the average delay time of ships has also begun to decrease, but the overall performance is still the lowest level in a decade.

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