Maritime Freight Costs Will Not Go Down in 2021By Jorge Ramos Zwanziger | Thu, 07/22/2021 - 09:34
Maritime freight costs will not see a reduction until 2022 argued Fernando Ruiz, General Director of the Mexican Business Council for Foreign Trade, Investment and Technology (COMCE), in a press conference held virtually. "We believe that for the remaining part of the year the conditions will more or less remain the same, but that starting next year a reduction in container costs may begin," said Ruiz, according to T21.
Why Did Freight Costs Increase?
According to a Special Report published by the Economic Commission for Latin American and the Caribbean (ECLAC), the COVID-19 pandemic extremely impacted exports, imports, transportation and logistics all over the world, particularly in Central and South America. The pandemic caused different transmission channels in countries like China to cease operations, forcing many economies to interrupt productive activities as they had no alternative suppliers. Small and large economies registering enormous reductions in both exports and imports during this period, according to ECLAC.
Moreover, maritime containers saw a large decrease in traffic, causing a supply shortage that sky-rocketed prices, according to ECLAC. Another problem is that the shipping industry is highly concentrated among the three companies. In 2020, three of the largest shipping alliances in the world concentrated about 84.2 percent of the market, allowing for costs to rise even more. “This container shortage and imbalance caused among suppliers created an increase in shipping costs and in maritime freights. Costs per container have been doubled or tripled when compared to pre-pandemic levels,” explained Eternity Group.
Demand patterns also experienced a huge shift due to the COVID-19 pandemic, causing the problem to continue as of 2021. However, “This is not the fault of any given supply chain actor. Supply chains simply cannot efficiently handle this extreme demand surge, thus resulting in the delays, disruptions, and capacity shortages felt across the chain. All supply chain players are working to clear the system, but the fact is that as long as the massive import demand from […] businesses and consumers continues, the challenges will remain,” says John Butler, President & CEO of World Shipping Council, according to World Shipping Council. The problem lies in the fact that if cargo containers experience delays, those same containers cannot be used by any other customers, prolonging hold-ups.
Are More Regulations Necessary?
According to the World Shipping Council, once demand normalizes, supply chains will be able to address delays and reduce costs on their own without the need for regulation. The council argued that prices will go back to normal once the effects of the pandemic start to wear off and production and consumption habits return to normal rates. Butler explained that it is better if decisions are made later rather than sooner; he is concerned that poorly addressed regulatory changes may have an even worse effect on the sector, limiting future recovery.