The cost of shipping goods from China to Europe has increased by up to 600 percent in recent weeks as the balance of trade routes is disrupted by the pandemic, resulting in a shortage of shipping containers.
At the beginning of 2020, it cost around $2,000 to ship a container from China to Europe. Now, some companies are being quoted up to $14,000.
“I’ve been trying to look through 30 years of data and we have never seen freight rates skyrocket to this point that we have seen now,” said Lars Jensen, CEO of shipping consultancy SeaIntelligence Consulting.
The issue is caused by a shortage of shipping containers in China and other parts of Asia because they are stuck in the wrong places.
In the first half of 2020, a global slowdown caused by the pandemic meant many shipping lines were canceled. Now, Asian economies are restarting their engines and Western demand for China-made goods is on the rise.
But congestion at European ports because of current lockdowns means the containers can’t be returned to Asia quickly enough – so there aren’t enough shipping containers where they need to be. And prices increase as companies fight for the few containers in circulation.
Philip Edge, the CEO of the UK freight forwarder Edge Worldwide Logistics, said the pandemic “really broke the cycle of the supply chain and how it works. It’s a fragile ecosystem and once it starts breaking down, it’s very difficult for it to catch up again.”
The skyrocketing costs are having a serious impact on businesses that are having to either absorb the costs or pass them on to the consumer.
Even large companies are struggling to shoulder additional costs, including The Entertainer, the UK’s biggest independent toy retailer.
“Some of the decisions we are having to make will be things like discontinuing certain lines,” Gary Grant, the Entertainer’s founder and chairman told.
“So, one of our very large teddy bears that retails for £40 ($54) would probably end up, because of the new freight rate, costing nearly double.
“We’re going to have to just discontinue very large items … It will have an impact on the range and it will have an impact on our retail pricing.”
China makes 60 to 70 percent of the world’s toys, so it is unrealistic to source goods from closer to home.
UK companies are facing additional pressures relating to Brexit.
“If Brexit works out fine and there are no major congestions in the ports, everything will work as normal,” Jensen of Seaintelligence Consulting.
“If Brexit turns into causing more congestion at major ports in the UK, as a major container line, the back-up plan would be we’ll just skip the UK port and discharge the cargo over in the continent.”
This could potentially cause serious issues for UK companies trying to import goods.
It is hoped the Chinese New Year holiday in February – when there is a lull in factory production – will bring down shipping costs.
However, it is likely the problem will continue in some form for months, as people turn to online shopping because of lockdowns, which increases demand for Chinese goods.
When those countries come out of lockdown and the global economy begins to open up, it is possible there will be a crash in the demand for goods because people will want to be spending their money on services and travel rather than goods.