Lack of Containers Raise Costs of Exports to Asia

Exports are recovering and if they keep up, Mexico could enter the Top 10 global economies. However, the ocean freight rate in 2H2021 continues at record highs due to high levels of demand, which could cause difficulties for shipping to China.

Mexico’s participation in world trade focuses primarily on the automotive industry, machinery and industrial equipment. Asia, for its part, is the world’s largest container production but has been lately experiencing a shortage of containers, which has caused a bottleneck in the maritime transport logistics industry and increased its rates.

According to Eternity Group, the freight all kinds (FAK) rate for the Asia-US maritime corridor increased again during July, with the ocean-all-in in the Asia-US West Coast corridor being US$19,500–US$25,000 for a 40HQ container, which is equivalent to a  600 percent year-on-year increase. The Asia-US East Coast corridor was at US$25,500–US$30,200 for a 40HQ container, equivalent to an increase of 500 percent compared to July 2020.

“This additional capacity on the Asia to Mexico route managed to reduce the volatility of the ocean freight market. However, during the last week of July, the market managed to trade higher again, closing this period at US$11,149/40HQ”, as reported by T21. 

Container companies are optimizing shipping routes and loading and unloading times to avoid port congestion by focusing on accelerating the availability of empty units while waiting for new containers or the repair of used containers, but this shortage worries the markets.

The shortage should decrease as port congestion reduces when companies are able to resume their normal work rhythms, which were disrupted by the pandemic. “As logistics disruptions caused by shortages of equipment, space, and COVID-19 outbreaks continue in regions such as Southeast Asia and China, concerns mount of potential blockages in export operations from this region that could worsen the logistics ecosystem. In a context of increased demand for cargo due to special dates at the end of the year,” according to Eternity. 

To address this matter, the US is manufacturing containers but these are more expensive than China’s, as the latter’s have the support of the Chinese government and involve less expensive labor costs. Also, the material to manufacture the containers, usually corrugated steel, is 28 percent more expensive in the US than in China. The Asian country also has large workshops to manufacture different types of containers for the global market.