Coronavirus has affected almost every aspect of our lives, even the one that we rarely think about. Today, we will talk about the meteoric rise in Freight costs, the reason behind it, how it will affect consumers, exporters, and importers, and what we can do about it.
Why Freight Cost is Sky Rocketing?
Increase Goods Demand - Sea transports 80% of the goods in the world due to its cheaper cost. When many parts of the world went into lockdown to control coronavirus, people started shifting their spending habits from services like travel, entertainment, eating out, etc., to buying goods for a comfortable indoor life. These goods would typically be electronic items, furniture, and leisurely clothes imported from different countries. This spending led to the demand for containers to transport the goods, leading to higher shipping costs.
Ever given - Suez Canal Fiasco - No matter what you do, you must have come across a huge vessel stuck in Canal and a tiny JCB trying to evacuate it.
The Suez Canal jam caused huge traffic and a spike in Freight cost, which never came down.
Trade Imbalance - High goods demand in the western countries has resulted in trade imbalance in the countries with high consumption. Since consumption from these countries has gone up, containers have to return empty from these countries. This also leads to port congestion which leads to vessels waiting in Sea to unload. Check out the image below of Vessels waiting at LAS VEGAS under the sky.
Covid Insurgence in China Ports - As we all know, China is the biggest exporter globally, and the ripples of the Delta variant are hitting China. China’s Zero infection policy has led to the complete shutdown of one of the biggest ports in the world - Ningbo-Zhoushan. The shutdown took place on 11th August when a worker was tested positive.
Shortage of Containers and ships is also a problem which is adding to the increased freight costs.
All in all, as Sea transports the majority of goods in the world, this increase in freight cost will soon be hitting consumer’s pocket as the company have already absorbed the increased shipping costs and would like to get their margin back on track.
Importers and Exporters need to be aware and very careful while closing a deal due to highly volatile Freight Costs.
We have adopted quoting customers FOB rates to avoid fluctuations in the quotation due to Freight Costs.
Thank you for Reading !
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