As the COVID-19 pandemic continues to disrupt maritime trade the cost of shipping goods is skyrocketing. In recent weeks, the situation is so dire that the cost of shipping goods from China to Europe has risen up to 600% owing to container shortage.
The cost has jumped from $2,000 in 2020 to $14,000 in 2021. While 14000 is the highest benchmark that some carriers are charging yet the standard rate charged by most carriers is quite high as well.
30 Year High Shipping Costs
Lars Jensen, CEO of Sea Intelligence Consulting, a shipping-related consulting firm has said, “I’ve been trying to look through 30 years of data and we have never seen freight rates skyrocket to this point that we have seen now”.
This unprecedented cost is due to the shortage of containers in China and Asia. Most of the containers are stuck in the wrong places because of covid restrictions.
As 2020 disrupted shipping many liners and carriers canceled bookings but as they resumed business the demand for Asian and Chinese goods in the Western world has risen to a great extent.
However congested European ports have resulted in stockpiling of empty containers in Europe which are unable to reach Asia to pick up the goods and as companies fight for containers available in circulation prices skyrocket.
Philip Edge, the CEO of the UK freight forwarder Edge Worldwide Logistics, said ” the pandemic really broke the cycle of the supply chain and how it works. It’s a fragile ecosystem, and once it starts breaking down, it’s very difficult for it to catch up again.”
Businesses Adversely Affected
These ever-increasing surges have affected businesses who are bearing the costs or passing it to the consumers.
Each and every large company is struggling with it. One such company, The Entertainer, UK’s biggest independent toy retailer has decided to tackle this by discontinuing certain lines, revealed Gary Grant the founder of the Entertainer.
“So, one of our very large teddy bears that retail for £40 ($54) would probably end up, because of the new freight rate, costing nearly double”, said Gary
“We’re going to have to just discontinue very large items … It will have an impact on the range, and it will have an impact on our retail pricing”, Gary added further.
It will be unrealistic to source goods from closer to home as China makes 60-70% of the world’s toys.
Brexit Uncertainty Looms
Amidst this, the Brexit deal is an added pressure for many especially UK companies.
“If Brexit works out fine and there are no major congestions in the ports, everything will work as normal,” Jensen of Seaintelligence Consulting.
“If Brexit turns into causing more congestion at major ports in the UK, as a major container line, the back-up plan would be we’ll just skip the UK port and discharge the cargo over in the continent.”
Brexit could seriously damage UK companies’ prospects if port congestion worsens as it would make sourcing goods more difficult.
There’s hope for the Chinese New Year production boom in February which might slow down the shipping costs. However,it’s likely to continue for months as fresh lockdowns cause more online shopping pursuits which will further increase the demand.
When the lockdown is lifted the demand will subside as people will splurge on traveling and other services rather than investing on goods.