Shipping costs are continuing to rise despite some carriers suspending rate increases and investigations by competition regulators, with the price for ocean freight on popular routes up by more than 500% in the last year.
The average price for a 40-foot container stands at US$10,374.64 as of September 16, an increase of 2.9% on the previous week and 323% higher than a year ago, according to the Drewry World Container Index, which tracks the cost of containers. It marks the 22nd consecutive week of increases.
Ocean freight rates have been soaring this year as demand for goods picked back up after the pandemic triggered a sharp slump across sectors. Disruption from lockdowns and a shortage of workers and containers have only exacerbated matters.
On sought-after routes, such as from Shanghai to Rotterdam, freight prices have increased by an eye-watering 570% in the last 12 months. Shipping a container from the Chinese city to Genoa is up by 509% for the same period.
The spiralling costs have hit companies, particularly SMEs, which have been struggling to cope with rates as well as the economic fallout from the pandemic.
In an attempt to calm the market, support customers and soothe inflation worries, two of the world’s biggest shipping companies have capped their freight prices.
French container line CMA CGM announced earlier this month that it had made the decision to stop all spot rate hikes until February 2022, effective immediately. “Although these market-driven rate increases are expected to continue in the coming months, the group has decided to put any further increases in spot freight rates on hold for all services operated under its brands,” it said in a statement.
The group added it is prioritising its long-term relationship with customers in the face of an “unprecedented situation” in the shipping industry.
Meanwhile German line Hapag-Lloyd has made a similar commitment to cap spot rates and freeze surcharge increases until “further notice”. A spokesperson for Hapag-Lloyd tells GTR that the company started “a couple of weeks back with a cap of our spot rates. Overall, we hope that the market will start to calm down. Additionally, we gave ourselves an internal halt to new surcharges.”
It has been suggested by experts in the market that Hapag-Lloyd and CMA CGM will already have rises in the pipeline as any change is typically announced a month prior to implementation. “Both carriers will of course still implement quite a number of increases… CMA CGM have some 40 price and surcharge increases in the pipeline and Hapag Lloyd have some 45 still to take effect,” writes Lars Jensen, a shipping container specialist, on LinkedIn.
Even so, the action may put pressure on shipping rivals to do the same, particularly as companies are benefitting from the higher prices. Maersk, the world’s biggest container line, has lifted its financial outlook for the third quarter of this year because of the “exceptional market situation within ocean”, it said in a trading statement on September 16.
Maersk has not announced any freight price limits.
A spokesperson for Maersk tells GTR: “We are committed to realising our business transformation and become a full-service end-to-end integrator of container logistics. In this pursuit, we are moving towards a larger share of longer-term contracts, which now has increased to around 60% of our total bookings.”
In his note, Jensen outlines why carriers may be inclined to move towards longer-term contracts and ease their reliance on the spot market.
“In other words, setting a cap on spot rates is a different way of saying that a higher willingness to pay on spot is not necessarily what gets you space on the ship. And, of course, if the market is at peak anyway there is nothing lost in implementing such a cap,” he writes.
According to analysis by Alphaliner, a company that specialises in freight data, operating margins for Maersk in Q2 were lower, at 28.7%, than its rivals. Hapag-Lloyd’s operating margin was 34.5%, while CMA CGM’s was 37.1%. Leading the pack were Yang Ming, with a margin of 58.4%, and Evergreen at 53.2%. An increase in the margin was recorded from Q1 to Q2 for all the operators named.
As global supply chains come under increasing pressure from shipping costs, regulators are investigating the price surge. The Australian Competition and Consumer Commission has launched an investigation in Australia into whether there has been a breach of competition laws in relation to containers.
In the US, the Federal Maritime Commission (FMC), a government agency tasked with regulating ocean transport, said in August it had launched an inquiry into the timing and legal sufficiency of ocean carrier practices with respect to certain surcharges.
As part of the probe, eight ocean carriers have been asked to provide the Commission’s Bureau of Enforcement with details about congestion or related surcharges they have implemented or announced. The companies contacted are CMA CGM, Hapag-Lloyd, HMM, Matson, MSC, OOCL, SM Line and Zim.
During the Global Regulatory Summit hosted by the European Commission on September 7, counterparties from the US, Europe and China met to discuss competition issues related to the shipping industry.
“The performance of ocean carriers in meeting historic demand for their services and the unusually high costs to move ocean containers are of interest and concern to regulators, legislators, and the public globally,” said FMC chairman Daniel Maffei, speaking at the event.
Earlier this year, shippers and freight forwarders in Europe called on the European Commission to investigate the practices of maritime carriers.
In a letter to the Competition Directorate of the European Commission, the European Freight Forwarders Association and the European Shippers’ Council urged the body to look into issues related to the violation of existing contracts, the establishment of unreasonable conditions concerning bookings and the unilateral setting of rates in excess of those agreed in contracts.
A spokesperson for the European Commission tells GTR: “Commission services are in contact with… agencies and are in regular exchange with market participants to fully understand the current circumstances and identify any scope for intervention that can facilitate return to normal operations. At this stage, the Commission has not received evidence, or identified anti-competitive behaviour from shipping alliances in relation to these price hikes, but will continue its very close monitoring of the sector.”