Container Shortage Triggers Freight Rate Spike Of 300 Percent As Port Congestion Worsens Worldwide

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Freight rates have fallen slightly in October, making some believe that the worst of the shipping crisis was over. Unfortunately, that hopeful perception didn’t last more than a couple of weeks because last week freight rates rapidly spiked to a new record high. In less than 7 days, the benchmark Baltic Dry Index, which measures the movement of the global dry bulk commodities and also shipping prices, shot up by over 16 percent due to the introduction of new restrictions on the movement of ships worldwide as a precaution to prevent the spread of the new virus strain.
The almost $9,000 increase in the Baltic Dry index signals a rapid change in shipping industry fundamentals brought on by strict measures at ports in China, rigorous surveillance imposed by the government of India, and similar measures adopted by several governments across the globe, including the European Union. The tightening vessel capacity we are currently seeing globally is adding even more pressure on soaring freight rates. According to VesselsValue in its 2021 Port Congestion Report, in November, Asia-U.S. shipping rates reached a staggering $130,000 per day, over a 400% increase compared to this time last year.
In America, as opposed to what the government has been suggesting in recent weeks, ports are still extremely clogged, especially in California. Just yesterday, the number of container ships stuck outside the port of Los Angeles has reached a new record of 111, breaking the previous record of 108 vessels a month ago. Last month, fines started to be imposed on the ports of Los Angeles and Long Beach, with companies having to pay $100 a day for every container left on the docks. After a container arrives, companies have three days to move it if the next step is by rail, or nine days if the next step is by truck. However, industry specialists say these fees will do little to help ease the port jams.
“The issue isn’t about a lack of desire to move boxes, but a lack of physical space,” explained Corey Bertsch, VP Solutions Consulting at Slync.io, a global logistics company. According to data released by American Shipper, at the end of November, there were almost 60,000 containers on these ports that had been there for more than nine days and would be eligible for fines. But as Bertsch highlighted, those fines will simply be passed on to the end consumer, compounding inflationary pressures that have already been pushing the price of everything to sky-highs.
Now, even large corporations that would typically be safe from sudden inflation upswings are warning that they cannot fight with such persistent inflationary pressures. In an interview with CNBC, Siemens Energy CEO Christian Bruch, alerted that the industrial world is going to be dealing with higher prices and supply shortages for much longer than expected. “It is going to be way into 2022 and honestly, my belief is managing the supply chain will be something which will be with us for a long time,” he said. Unilever CEO Alan Jope, also sounded the alarm, saying that the company was witnessing “once in two-decade inflationary pressure”. “We are seeing commodity inflation across really every type of input cost that we have — agricultural commodities, petrochemical commodities, paper and board, transport, logistics, energy, labor — all are moving in an upward direction,” he said.
Last month, the UN warned that surging freight rates would be translated into higher prices for consumers early in 2022, with the global import price levels set to increase by 11 percent. “Global consumer prices will rise significantly in the year ahead until shipping supply chain disruptions are unblocked and port constraints and terminal inefficiencies are tackled,” Unctad said in its Review of Maritime Transport 2021 report. To make things worse, hikes in oil prices, geopolitical conflicts, the worsening health crisis, and broken supply chains “have come together to create a potentially devastating scenario for the global food system,” a panel on food security heard.
“These have created a perfect storm for global food collapse”, stressed Fan Shenggen, chair of the academy of global food economics and policy at China Agricultural University. According to the UN Food and Agriculture Organization’s monthly food price index, global food prices skyrocketed nearly 33 percent last year and the latest Goldman Sachs report forecasts that food inflation will likely get worse before it gets better. We’re entering some exceedingly difficult times. Sadly, the problems we’re facing today are only going to be aggravated in the coming months. We’re on the verge of another dark winter, and as our system persistently collapses all around us, we’re going to have even more turbulence and chaos awaiting us.

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Epic Economist

Epic Economist

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