Export Business is being Lost due to Extreme Freight Rates

Drewry highlighted the issue of extreme freight rates -i.e. rates that are at least 50% higher than the historical average of the previous 5 years and that last at least 3 months (so as not to confuse them with freight rates, peak season, or one-time rates)- and predicted that spot rates would continue to rise. Three months later, they have risen another 70%, and freight rates are even expected to approach $20,000 on some routes.

Publication Date- 12 July 2021

According to the consultancy, average spot rates between Asia and the west coast of the United States exceeded $ 4,000/FEU in September 2020, slowly rose above $ 5,000 in May 2021, and have since skyrocketed to reach $ 9,000 in July. There have been reports of prices of $ 15,000 and there is a certainty that shipping lines are charging additional premiums to prioritize loading a late booking over normal FAK rate loads, Drewry stated.

Likewise, spot rates between Asia and Europe have broken multiple records and it is very common to find 5-digit prices for the shipment of a 40-foot container.

This escalation in freight rates began around June 2020 in eastbound trans-Pacific trade and was followed by an even faster increase in Asia-Europe rates around December 2020. As of July, there are extreme freight rates not only on the Eastbound Trans-Pacific and West-Asia-Europe routes but on all Trans-Pacific, Asia-Europe, and Trans-Atlantic round-trip routes.

Currently, the rate increases over the historical average of the last 5 years range between 84% on the Rotterdam-Shanghai route and 391% on the Shanghai-Rotterdam route, reaching 7,000 to 10,000 USD/FEU in the main routes from Asia.

In fact, for low-value products, this unexpected premium cannot be absorbed by shippers and, as Drewry points out, there is evidence that some export business is being lost due to these extreme transportation costs.

What would happen if shipping lines decided to allocate low vessel capacity and empty containers to certain operations only if spot rates were at least 300% higher than the historical average? If they did, the rates of the transatlantic route (in both directions), the trans-Pacific route to the west, and the Europe-Asia route, which already experience extreme freight rates, would increase even more.

With the upcoming peak season on Asian routes, Drewry expects spot rates and underlying capacity shortages to further exacerbate.

Drewry is an independent maritime research consultancy offering market insights and advisory services to senior stakeholders across the global shipping

Source from https://www.freshplaza.com/article/9338256/export-business-is-being-lost-due-to-extreme-freight-rates/