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Why the Ocean Freight is Increasing?

Why the Ocean Freight is Increasing?
Since the third quarter of this year, international shipping rates have been rising, with the ongoing shortage of shipping containers continuing to worsen. This has had a huge effect on the supply chains of cross-border agricultural produce.

The cost of container transportation between China and the east coast of the U.S. increased to new highs in mid-November, hitting $ 4,750 per container, a 42 percent rise since July, according to recent data released by RefinitivEikon. Meanwhile, the cost of shipping to the west coast of the U.S. from China has increased by 50% to $3,878 per container.

All major carriers are experiencing a shortage of containers at Asian ports, especially in China, according to media reports. In 40-foot containers, the deficit is primarily observed. In addition, many carriers place limits on the release of empty containers before their shipment is scheduled.

Earlier this year, the impact of the COVID-19 pandemic on global shipping and supply chains started to manifest, with the lower availability of shipping containers visible as early as February. Throughout November, recent shortages have worsened, followed by other critical issues such as labor and equipment shortages and congestion in various ports, particularly in the U.S., U.K. Europe, and.

The availability of empty containers is under immense pressure, representing a historical problem facing our entire industry. As the container utilization chart of the 40-foot container fleet shows a very simple "V"-shape in the development curve, the unparalleled pace at which the COVID-19 pandemic has impacted economic developments becomes clear. As demand in the second quarter was incredibly poor, things really began to get difficult from the third quarter onwards; inexpensive and strategic storage locations are being looked for the demand for equipment has now risen tremendously. It's hard to believe that 600,000 TEUs of 40 containers were "empty on the ground" in early July and today? The 350,000 TEUs on the field scarcely cover two weeks of worldwide export volumes.

The speed of emptying and turnaround for refrigerated containers (reefers) has also slowed, resulting in container backups at several ports. News reports suggest that there are crucial shortages of containers in the major Chinese ports of Qingdao, Lianyungang, Ningbo, and Shanghai, with delays in berthing rising by the day and pressure on the ports showing no sign of easing. Due not to a lack of cargo, but rather to a lack of available refrigerated containers, especially 40-foot containers, many vessels leave Chinese ports only partially loaded.

In addition, major shipping carriers Hapag-Lloyd and the Mediterranean Shipping Company have reported that more delays in berthing schedules are caused by a significant shortage of reefer plugs at Tianjin ports. The shortage is due to the increased testing and prevention measures needed by the Chinese authorities for imported cold foods for COVID-19, which means that the containers are kept in the port for longer periods of time while the inspection is done, extending the supply of plugs to the limit.

At present, China's export volumes continue to remain steady, but import volumes have decreased dramatically, which means that empty containers are trapped in overseas ports and do not return in adequate amounts to China. This shortage is compounded by limitations on the release of empty containers from several carriers before they are scheduled for shipment. In mainland China, for example, Hapag-Lloyd only releases containers from warehouses up to eight days before a planned trip arrives.

One Chinese exporter of agricultural products noted that the shortages of containers are seriously affecting some smaller sea freight firms, leaving exporters with little choice but to turn to larger carriers. The widespread shortages and delays mean that many shipping companies have started to add surcharges to compensate for the growing operating costs. Several major carriers have already applied or planned to apply surcharges to many international ports like London Gateway and other U.K. ports in the past month. Ports, the New Zealand port of Auckland, the Spanish port of Bilbao, the Chinese port of Tianjin Xingang, and several other ports of origin in Asia.

Chinese container manufacturers have already increased their usual working hours from 8 hours to 11 hours and, since September, have begun to produce 300,000 twenty-foot equivalent units per month.

The association reported that the effects of the COVID-19 pandemic on demand in countries around the world and the approaching Christmas season, the peak season for exports of Chinese goods to Europe and the United States, were among the reasons for the shortage of containers. The average China Containerized Freight Index stood at 1,198 on Nov 27, up 4.6 percent on a weekly basis, according to the Shanghai Shipping Exchange. Based on data sourced from 22 international carriers, the index tracks spot and contractual freight rates from Chinese container ports for 12 shipping routes around the world.

In the past 11 months, 238,000 TEU containers were handled by Shanghai via the railway-to-port model, up 79 percent compared to the same period a year earlier, China Railway Shanghai Group said on Wednesday. In September, more than 30,000 containers were handled in this mode, a monthly high, it said.

As more cost-effective, safer, and more environmentally sustainable, multimodal container transport through rail and connecting ports is being promoted, the group said, forecasting that this year more than 250,000 containers will be handled through this model.

As the country largely regulated the COVID-19 pandemic, the increased shipping through the new transport model is just one reflection of the rebound in the total container throughputs at ports across China.

Recently, Europe's Shanghai Container Freight Index (SCFI) spot rate index has risen sharply, with Northern Europe rates up 21% and Mediterranean rates up 23% - likely with more rises ahead, meaning that both of these trades are now at rates that have not been seen since the beginning of 2014. And it may be in store for further rises.

The current shortage of containers is likely to continue to affect major ports until the Lunar New Year in February, with an ongoing effect on foreign supply chains for agricultural produce.