The past couple of years have been harsh on business owners mainly due to the global economic scenarios. Apart from the fierce competition, the traders are now worried about the soaring shipping rates across the world seaports. Experts are predicting that this shipping rate hike is not going to come down anytime sooner, not at least this year. These surges are affecting everyone involved in the supply chain system. Both suppliers and consumers are suffering due to this burden, but the biggest consequence businesses are facing is the change of customer behavior. So, what are the reasons behind this spike in shipping rates? What can be expected in the near future? Let’s find out!
Table of Contents
5 Reasons Behind The Rising Shipping Rates Across World Sea Ports
1. Covid-19 Pandemic
The biggest culprit of the current shipping rate hike in 2021 is none other than the deadly coronavirus. The reason is, after the lockdown opened, the demand increased exponentially by nearly 100 to 200%. However, during the lockdown phase, most companies stopped supplying because of the huge drop in demand.
The real fact is, the problems started to develop from the very beginning of the pandemic where businesses suffered imbalances in the production and demand of products as the countries are opening and locking down at different times. Also, the shipping companies have been cutting the shortages of empty containers and the capacity on major trading routes. As the recovery phase started and markets began to open up, the global demand spiked, especially within the industries that are linked with global trade in goods. Competition for freight capacity has also increased as the global economies have opened up and the businesses have started to function again.
2. Lack of Ocean Freight Alternatives
Another reason behind the increasing shipping rates across the World Sea Ports is definitely the shortage of ocean freight alternatives. This only means that there is no way to deal with the higher shipping cost. Traders don’t have any option other than ocean freights, so they have to rely on them no matter how high the cost goes. Generally, for the higher-value products like electronic or machine equipment, there are alternatives like trains and air. But the problem is, capacity is limited and the tariffs have also increased. Shippers of low-value goods such as toys, household items have experienced freight cost rise from 5 to more than 20%.
3. Slow and Unbalanced Recovery In 2021
Some countries are exporting a lot more goods than they’re exporting before the Covid-19 period, while in a few others, exports are lagging behind due to a slow and unbalanced recovery. Trade-in goods will definitely rise further both in the major countries as well as in important trade partners, as they recover. With the high competition for the freight capacity to remain, the slow recovery will continue to worsen the situation of world sea ports. And this will push the freight rates to increase even more. Click here to find out more about world seaports.
4. Port Congestion
Port congestion is also a part of a bigger problem as the link between delays and canceled sailing is now broken. Note that the shipping performance during this year has started from where 2020 left off, mainly in terms of average delays for late vessel increases and lower rates of vessels. There are some signs that show that the normal performance of shipping will improve with the improvement in average delays. But overall, the performance as of now is the lowest it has been in a decade.
These are the main reasons behind the increasing shipping rates across the world. Experts suggest that these are not going to lower for at least a year or two and hence, traders should be better prepared for it.