At the end of last year, once the Covid ceased to be the first problem for the economy and the markets, the main concern at a global level became the bottlenecks and supply problems that some countries were having to obtain goods from from other geographies, especially from Asia.
With the start of this course, the problem, which persisted, was causing a clear increase in the prices of both the transport itself and the transported materials, something that worsened after the invasion of Ukraine by Russia, which hit a important to all global business relationships.
In this sense, according to the index collected by Bloomberg called the Freightos Index, the price of moving a 40-foot container by sea has fallen by 22% from the maximum it marked in September. So, what had to be paid to transport this cube had reached 11,108 points of the index, something that had never happened since it was counted (2016). This index results from a weighted average of the 12 largest trade routes in the world, which in turn are represented by their largest ports.
It is important to differentiate between these freight price indices and the famous Baltic Index, a basket that includes the price of the largest maritime routes, but, in this case, exclusively of dry bulk cargo ships, the bulk carriers, which transport materials raw materials, and not the containers that are used in world trade across the sea to transport all kinds of goods. The Baltic Index correction is even stronger than that of the Freightos Index, down 49% from the highs hit in 2021.
Precisely there, on those routes, by analyzing these sub-indices, it is possible to discriminate where there is greater pressure on prices and where there is not. With origin in China and destination in Europe, although prices have fallen almost 30% from maximum, they are still more than four times what was paid at the end of 2020. If the reverse trip is made, prices have fallen by 30% in this same period. From China to the Mediterranean area, no significant relief has yet been glimpsed.
The other great commercial geographic area is the United States. Shipping containers there from the Old Continent costs more than ever to the East Coast but 33% less than a year ago to the West Coast. From the US to Europe it is still in the area of historical maximums. As for the trade relationship between the two great world powers, prices have skyrocketed.
Prices are far from normalized at pre-pandemic levels, and are more than 5 times higher than then
From China to the West Coast, eight times more is paid than two years ago, although 33% less than in August, when it hit its highest. Up to the West Coast there has been a 485% increase in two years, and a drop from all-time highs of 28%. Less is exported from the United States to China, but prices have also increased in the last 24 months. 76% from the West coast and 63% from the East. However, relief has also come from this part and the levels of these indices have fallen by 32% and 42% from highs, respectively.
In the case of Spain, sources from the intermediation sector, between clients who want to bring their goods from China and shipping companies, explain how “the 40-foot container came to 16,000 dollars from China, and now the price moves between 10,000 and 11,000 dollars”, they point out. “Shipping companies are adjusting their supply based on demand, to prevent the price from falling, and on many occasions they suspend departures to prevent the ship from going half full and the price of their services to drop,” they explain.
This practice is consolidating at a time when “an economic slowdown is beginning to be noticed, and the demand for containers is not the same as when Covid passed. In 2021 there was a huge demand, and now it is not at that level, so, logically, the price had to go down,” the same sources point out.
Despite the latest correction, it is important to note that prices are far from normalized at pre-pandemic levels, and are more than 5 times higher than then.
a heavy congestion
Freight prices have corrected from last year’s highs, but the situation of congestion and delays in orders has not. According to data compiled by Citi, the schedule reliability index in the maritime industry is at its worst in recent years.
From 2018 until now, there had never been such a low reliability percentage, around 30% at the start of the year. To get an idea of the problem, the reliability of a freighter arriving on time was around 70% in 2018, 80% in 2019, and a similar percentage in 2020 until the summer began.
The second half of 2020 was where the problems started, with a drop to 40%, and 2021 in which reliability remained around 35%. Now, the start of 2022 shows the worst data in this time series.
From Citi they expect that “the limitation of the short-term supply dynamics will continue, due to the high levels of congestion in the ports”
In this sense, if the delay is measured in days, the average delay of cargo ships that do not arrive on time is 8 days, one day more than in 2021 and practically double what had to be expected in 2020, 2019 and 2018.
And it is that, although the prices are not so expensive, the congestion in the ports is now at one of the worst levels that have been seen in recent years, similar to those seen in October 2021 and March 2022, with about 9 million containers sitting around waiting to enter the port at the moment, according to Citi data, a problem that is now focusing mainly on Southeast Asia, due to the confinement measures that have been adopted in China due to to the latest wave of Covid-19.
This strong congestion could begin to dissolve in the coming months, if the estimates of some analysts are fulfilled. From Citi they expect that “the short-term supply dynamics will continue to be limited, due to the high levels of congestion in the ports that reduce the available capacity.” “However, by 2023 they estimate that it will have improved, although it will not yet be able to absorb all the demand that there will be,” they add.
As for demand, “in 2022 it will grow 2%, 2 points less than previously expected due to bottlenecks and production cuts due to restrictions in China,” they state. “Inventories will remain elevated for a while as lead times in the US have doubled since 2019,” they conclude.
Of course, before the situation begins to unblock, it seems that we will still have to wait a while. In Bank of America they explain that “the disruption in the freight market has worsened with the war in Ukraine and the restrictions in China due to Covid, and may persist longer than expected; prices are also falling due to a drop in volumes traded with Russia, lower volumes also with China and a greater import precaution by Europe”.
In Spain “we have been 2 or 3 months in which the delays are constant”, explain sources in the sector. “A ship from Shanghai to Valencia takes about 30 days, and right now delays of 3 to 5 days are being seen. Generally the problem comes from congestion in the ports,” they indicate. However, they acknowledge that “the congestion is not that of last year. It was brutal at times, with 45 anchored ships waiting to enter Long Beach (port of Los Angeles),” they acknowledge.
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