Experts warn that the cost of shipping goods via containers will reach an unprecedented high in 2022. Peter Sand, Chief Analyst at Xeneta, has warned that this will likely be the case even if spot rates reduce. Price hikes could have a profound impact on international trade.
How Much Will Shipping Costs Increase?
Higher long-term shipping rates are expected as a result of container lines' strong position in negotiations over long-term shipping rates, as well as the urgency with which shippers are attempting to secure long-term capacity.
It is estimated that fronthaul long-term rates will double or even triple this year in comparison to last January’s rates. Xeneta’s Sand gave the example that average long-term contract rates may reach $9,300 per feu on certain routes (the Far East to North Europe), representing an almost three-fold increase from their rates last year. Over the same period, it is predicted that long-term backhaul rates will increase more modestly, up by 12% on 2021’s rates.
According to Freightos, in 2022, the average cost of shipping a 40-ft container to Northern Europe from Asia is around $14,483. This represents a 10-fold increase from 2019 rates.
Some trade routes, in particular, will be more impacted than others. In the Far East, half of the major trade routes have increased to record highs. Rates from the Far East to North Europe and to the Mediterranean have already increased by 6% and 2%, respectively.
Spot freight rates peaked in May 2021, with shipping routes from Northern Europe to the Far East being particularly affected. While rates have begun to fall after this peak, they have yet to return to pre-pandemic levels.
The Covid-19 pandemic is thought to be a major factor in this hike in shipping costs, although as the world gains control over the virus and removes restrictions on travel, shipping rates are continuing to rise. It is likely that rates will not return to normal for many years to come, as the ripples of the pandemic linger, with emerging markets such as South America and western Africa being hit hardest.
Shipping Container Companies Enjoy High Profitability
However, not all sectors are feeling the pinch of the rising shipping costs. Container shipping companies are enjoying large profits. It has been reported that the world’s biggest container shipping company, AP Moller-Maersk, amounted to $24 billion in pre-tax profits in 2021, representing a three-fold increase from 2020’s profits.
In addition, Maersk’s chief executive, Søren Skou, has reported that the company has enjoyed “record-high growth and profitability” due to “exceptional market conditions.” Hapag-Lloyd, a rival of Maersk, has also reported increases in profits. In 2021, its pre-tax profits reached $12.8 billion, and an increase of $10 billion from 2020 rates.
It is unclear whether these rising rates will continue. It is likely that some return to the status-quo must ensue in order to support international trade. As the ripples of the pandemic die down, we can expect to get a clearer view of what the short and mid-term impacts of the pandemic are, and what will be long-term. There are hopes that hikes to shipping costs will not linger, although for 2022 it seems high rates are here to stay.
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