Freight rates surge in Asia due to container shortage, halted delivery, and surging orders

The COVID-19 pandemic continues to destabilize the world in more ways than one, as freight rates surge for trading firms in Asia as the result of global supply chain disruption. Trading firms are facing delayed deliveries and potential business losses, and pointing their finger at logistics companies.

Freight rates between Shanghai and the UK rose nearly four times between March and November, while rates from Shanghai to Los Angeles more than tripled as a direct result of container shortage, lack of transportation space and surging shipping demand.

Trade volume in Asia saw a double-digit contraction in the first half of 2020, followed by a quick rebound in trade in the third quarter. Such dramatic ups and downs are creating a problem, according to Jens Eskelund, Managing Director at Maersk China Ltd., the Chinese branch of the Danish shipping and logistics giant.

Eskelund said shipping and logistics companies are used to work with very high utilization levels of ships to make money in a slim-margin industry.

“Typically, we see very little volatility in the market, but we saw first a very deep contraction. Then we saw a very, very steep rebound. And that is essentially what right now is creating the problem,” said Eskelund.

The Danish company is deploying all available vessels in their fleet and has bought or leased all available containers to reduce freight rate fluctuations, Eskelund said. But the main concern is whether port capacities and other links in the global supply chain can keep up.

He told CGTN that, at present, Maersk’s ships have to wait outside the ports for as long as five days before getting the containers discharged, significantly increasing scheduled times for return shipments to Asia.

The representative noted that it’s unfair to blame shipping companies for surging container shipping costs since, without full recovery of public health and business activities, trade actives will remain slow, and ports worldwide will continue to slacken.

Global business activities will not return to normal before COVID-19 vaccines are fully adopted and the next six months in 2021 will be critical, said Jimmy Zhu, chief strategist at Fullerton Research.

“Recently, the cases in Europe and the U.S. are surging again. And despite the fact that central banks and global governments are able to provide stimulus, if the virus spreading continues, we’ll probably see some disruptions that we saw 6 months ago,” he said, adding that the pandemic might also create some volatility for the oil prices and consequently impact the freight costs.

But there’s hope that eventually things will go back to normal next year. “If we talk at the same time next year, we will be back to the level it (global trade) was in 2019,” said Eskelund.