High freight rates and shipping congestion issues are now expected to continue into mid-2022, experts are warning, particularly if the Omicron coronavirus variant prompts fresh containment measures in the US or China.
Though global trade volumes have recovered sharply since the 2020 slowdown, this year has been characterised by logistic and cost issues affecting maritime goods trade. Despite price freezes and regulatory action, ocean freight costs on certain routes have risen by as much as 500% during 2021.
There had been hopes among shipping companies and freight forwarders that market normality would return this year or early 2022.
But Allan von Mehren, chief analyst for China at Danske Bank, said during last week’s GTR Nordics event in Stockholm that those estimates “continue to be rolled into the future”, adding: “Now the forecast is in the middle of 2022, maybe we can get back to somewhat more normal levels.”
The predictions follow UN warnings that global import prices could increase 11% by 2023 if freight rates do not return to pre-pandemic levels.
For von Mehren, much of the issue stems from soaring US demand for imported goods from Asia, propelled by changes to consumer and corporate spending during the pandemic, which is complicated by container congestion and intermittent lockdown measures affecting Chinese ports.
In the US, consumer demand for goods has been around 15% higher than average this year, he said, likely due to lower spending on services sectors such as travel and hospitality. Government-issued stimulus cheques have also increased consumer spending on goods.
Thriving sectors have included electronics, furniture, fitness equipment and DIY supplies. At the same time, companies have upped spending on goods that support working from home, including electronics and office supplies.
“We’ve never seen something like this before,” von Mehren said.
However, because production of those goods is concentrated in Asia – and particularly China – there has been far greater demand for shipments from Asia to the US than the other way round.
Figures from this week’s Drewry World Container Index show the spot freight rate for a shipment from Shanghai to Los Angeles is currently over US$10,000, compared to around US$1,300 in the opposite direction.
The figure for Shanghai to New York stands at over US$13,200, nearly three times the equivalent price last year.
“The way we have ordered our supply chains with production in Asia, is why we have this massive squeeze in freight markets,” von Mehren said. “Containers are going from China, from Asia, to the west, and then a lot of them come back empty.”
The Copenhagen-based economist suggests this global imbalance between supply and demand could be exacerbated if the US or China introduce fresh Covid-19 containment measures.
On the US side, stricter containment or lockdown measures could continue to push demand for goods, while in China, a single port closure can reduce shipping capacity by as much as 13%.
“The risk is that if we get another wave of Covid in the US over the winter – which unfortunately seems fairly likely given the vaccination rate is only around 60% – that could mean that consumers continue to stay home but they just continue to buy a lot of goods,” he said.
The day after von Mehren’s comments, the World Health Organization (WHO) designated the Omicron variant of Covid-19 a “variant of concern”.
The WHO says it is not yet known whether Omicron is more transmissible, causes more severe infections or responds differently to vaccination when compared to earlier variants.
But with infections already reported in Canada, Germany, Israel, Portugal, South Africa and the UK, several countries have already implemented tougher border controls or tightened domestic containment measures.
Another concern is that rising demand for the production of goods – coupled with the resumption of industrial activity, particularly in China – has caused demand for raw materials to surge. For smaller and medium-sized producers and traders, drastic price increases across metals, fuels and agri-goods have made cross-border activity financially unviable.
For Victoire de Groote, chief economist at Mitigram, these changes to global trade flows appear to be “structural”. As a result, she expects China to shift its focus away from rapid growth in export markets, and for other regions to reduce their reliance on Asian goods.
“Domestic consumption will be the key and not really international relationships,” she said at the same event. “When I say domestic, I don’t mean per country; I mean per region. So we’re going to have, in my view, more trade within what I call domestic markets, like European markets.”