Interrupted Supply Chains and Increased Prices

Interrupted Supply Chains and Increased Prices

Due to ongoing disruptions due to issues such as the Suez Canal and geopolitical tensions, shipping liners are imposing surcharges and higher freight rates, which are having a disproportionately large cost impact on small volume shippers.

Since major operators began rerouting via Africa’s Cape of Good Hope, spot container rates for transpacific and transatlantic trades have, on average, doubled. According to the Drewry World Container Index, spot container rates have risen from $1,661 per FEU on 18 December to $3,824 per FEU by 29 January, the highest since October 2022 and 116% more than average 2019 (pre-pandemic) rates of $1420.

The average composite index for the year to date is $2871 per 40-foot container, which is $196 lower than the 10-year average rate of $2675.

The majority of trade routes experienced increases: Shanghai-Genoa (25%), Shanghai-Rotterdam (23%), Rotterdam-Shanghai (19%), Shanghai-New York (8%), Shanghai-Los Angeles (2%) and New York-Rotterdam (1%). Conversely rates on Los Angeles to Shanghai dropped by 1%.

These cost increases have come at a time when many anticipated normalised demand, in conjunction with an overabundance of new ships, would see costs remain at more neutral levels throughout 2024.

Unfortunately given the current landscape, it appears the opposite seems to be the case, with shipping liners upping rates and introducing surcharges and levies in the wake of increased transit times, higher fuel costs and amended services. Compounding this is speculation that east-west spot rates will increase in the coming weeks, due to the Red Sea/Suez situation.

Whilst some shippers are using their contract terms to rally against the introduction of these higher costs, the shipping liners are taking advantage of the challenging environment to target certain shippers with higher rates and surcharges.

According to a recent Journal of Commerce (JOC) report, major beneficial cargo owners (BCOs) with contract commitments that move upward of 60,000 FEUs per annum are still paying their contracted rates and able to leverage generous terms including 15 days of free time. However, the same does not seem to apply to non-vessel-operating (NVOs) common carriers, which appear to be the parties subject to the cost increases and lack of flexible terms.

Given the lack of clarity around the varying surcharges and levies, it’s no surprise there is push back from customers and a request to operate in adherence to any existing contracts. Conversely, shipping liners are exploring the ability to amend contracts and request surcharges as needed in response to ever-evolving market conditions.

As a result, the Federal Maritime Commission (FMC) plans to hold a hearing into the spate of surcharges now hitting US shippers.

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