More than one year into the COVID-19 pandemic and container shipping activity is above trend. However, ongoing congestion in ports, container shortages and strong demand for goods from Western economies have caused freight rates to skyrocket, with a risk that consumer prices rise.

More than 80 per cent of global goods trade volumes is carried by sea, with about a sixth of that in containers. Trade in April-June 2020 fell 21 per cent from the previous year as the virus spread but has recovered more quickly than expected.

However, international freight remains disrupted. Container rates from China to Europe increased by 325 per cent between June 2020 and this January with some traders paying ten-times pre-pandemic rates. Container shipping rates from China to the US West Coast more than doubled. The cost of shipping dry bulk commodities is the highest for more than 10 years.

Mainland China quickly restarted production and exports last year following the initial disruption to supply chains. As global lockdowns eased, demand rose, fuelled in part by government stimulus measures. Mainland China’s container volumes to North America rose 16 per cent in the year to February, lifting its share of global exports from 14 per cent in 2019 to nearly 17 per cent.

But shortages in labour and equipment in key US ports have led to backlogs. As a result, shipping lines are quickly trying to return empty containers to Asia to be filled with more profitable Chinese goods.

And March’s blockage of the Suez Canal – a major East-West artery carrying a quarter of global container trade volumes – is exacerbating congestion in major ports such as Rotterdam and Singapore while rescheduled sailings could affect container availability.

As a result of ongoing trade disruption, some traders are seeking alternative transport. The number of cargo trains from China to Europe has more than doubled in a year. However, air freight capacity remains limited due to the grounding of passenger aircraft, which typically carry about half of global air cargo volumes.

There are some signs of shipping disruption contributing to rising producer prices in Europe and the US. HSBC European economists estimate that the 205 per cent rise in container shipping costs over the past year could raise producer prices by up to 2 per cent in the eurozone. But this might affect only a limited number of sectors and the impact of rising container freight rates on consumer prices is less clear, at this stage.

In the near term, port congestion coupled with high demand for containerised US imports stemming from inventory restocking and fiscal stimulus measures are likely to keep container shipping rates high.

The World Trade Organization expects global goods trade to rise 8 per cent this year, driven by 11.4 per cent growth in North America imports. Asia will continue to help meet this demand, with exports forecast to grow by 8.4 per cent. There is thus a risk that container-shipping rates stay high for some time and the longer freight remains disrupted, the more likely higher shipping costs may be passed on to consumers.

First published 6 May 2021.

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Deals and disruption
Keeping trade moving 2021 ⁠–⁠ An update on shipping disruption

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