With over 85% of merchandise trade carried by sea, rising freight rates threaten to push up the price of everything from toys, building materials, furniture, auto parts and components to everything. Shipping a 40-foot container by sea from Shanghai to Rotterdam, according to Drewry Shipping, costs a record 10,522 USD, 547% more than the seasonal average of the past five years. The recent outbreak of COVID-19 in Asian countries – particularly India and China in particular – is cause for concern. Thus, when economic activities resumed after containment, there was a shortage of sailors and other professionals in the fall of 2020.Ī combination of factors, including surging demand, a shortage of containers, saturated ports, too few ships and dockworkers, have contributed to the situation on almost all trade routes. Many shipping companies were forced to moor ships and send sailors on long vacations. The rate hike was caused by the COVID-19 pandemic, which caused a massive drop in trade, leading to a drop in shipments around the world, said Rizwan Sajan, founder and chairman of the Danube Group. The China Container Freight Rate index jumped 170% in April this year from what it was in July 2020, while the Harpex World Charter Rate index jumped 350% in one year from July 2020 to July 2021. The World Dry Baltic Index has risen from – 50% in May 2020 to over 400% in May 2021 – an unprecedented increase in one year. Freight prices have slowly started to show a downward trend.Freight rates have quadrupled since the COVID-19 pandemic triggered a global lockdown in March 2020, pushing retail prices higher, affecting consumers around the world trying to recover from a loss income and activities. The question is, what happens next? Importers in the United States have started buying from Europe at higher cost as their production demand has gone up. But the price surge is temporary and you can still serve the customers if you are having the basic stocks. Now, what is the impact on traders? They are not able to give quotes with long term validity as stocks are not available. The increase in materials prices is not due to an increase in demand, but due to supply-side constraints caused by the COVID-19 related shutdown. The lower volume of cargo added to the jump in the freight rates, as the containers lied empty following a shipment and could not be utilised due to lack of movement. Once market opened, the demand for containers in China went up as other ports didn’t have empty containers to return to China. The timing of the price increase has added extra pressure on the traders and end-users, making end-products more expensive at a very crucial time. This whole thing had a cascading effect.Īs a result, end-users are paying more for the same quantity – at a time when, money is hard to come by.
The empty containers were not coming back to China. But due to COVID, the loaded containers were stuck and started piling in ports of US and other countries as rail and road networks were not functioning. So, the supply-side issues including the shortage of resources constrained the production and shipment that pushed up the prices. So, when demand started to pick up from November- December, 2020, the factories weren’t ready to supply due to worker shortage or shortage of resources, including raw materials, capital, etc. The lockdown saw a large number of materials stockpiles stuck at the warehouses, that had exhausted over the last 7-8 months. However, the real reason is that due to complete shutdown of the factories following the complete lockdown in China, India and other countries – from March to June 2020, the workers had either left the area or relocated to other places. One of the reasons is that the demand for raw materials in China and India went up after the factories opened post the COVID lockdown. To add salt to injury, the freight rates have also increased manifolds, in some cases from US1,000 to US4,000 a container. Steel prices, for example, have gone up from Dh1,800 to Dh2,600 per tonne while the price of white wood jumped from Dh600 to Dh1,000. Prices of almost all building materials products have gone up by 25 to 30 percent in the UAE and GCC. However, there is a reason behind the spike. It might surprise many industry observers as the change in the demand-side situation doesn’t justify the increase in price. Prices of building material have increased suddenly in recent months that has created a temporary hiccup in the market.
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