Currently, more than 80% of international trade is done by ships and sea freight costs directly affect the price of different types of goods, such as coffee, rice, sugar, auto parts, furniture and toys, among others. In 2021 these costs have risen 547% over the last five years’ average and such increases might soon hurt the consumers’ pockets.
This price spike is related to several factors, such as congested ports, increased demand, and shortage of containers, ships and port workers. It is worth noting that major Asian exporters, like China, are suffering from recent COVID-19 outbreaks, which intensifies the difficulties. The highest freight rates apply to long-haul routes and in developing regions where consumers and businesses have fewer resources.
For instance, shipping cargo from Shanghai (China) to Rotterdam (Netherlands) is 67% more expensive than shipping to the West Coast region of the USA. Rates for South America and West Africa are higher than for any other trading region. For example, in the beginning of 2021 freight rates from China to South America increased by 443% compared to a 63% increase on the route between Asia and the east coast of North America.
Shopkeepers who work in the retail business have already noticed such product price surge and hence they are seeking solutions to prevent their profits from dropping. The possibilities range from interrupting international trade, increasing final prices for the consumer, and even absorbing the costs initially and passing them on to the consumer later on.
In addition to that, the current situation also affects final consumers in another way. Because of the sea freight price increase, some places have decided to no longer import certain products. That is the case of Europe, which has reduced the import of anchovies from Peru, as the high freight cost has made its final price much more expensive than the local production. On the other hand, many European producers have also not been able to export their olives to the United States.
Even Arabica and Robusta coffees, which usually come from Asia, have been harmed by such an increase. So far, coffee exports from Vietnam are around 22% lower compared to the same period last year. On the other hand, because of the decrease in Vietnamese coffee exports, coffee in Brazil has been gaining more strength and participation in the market, as other transport routes become more prominent. However, the scenario still presents stable prices, considering the reduction of crop size in Brazil, the recovery of the world economy and the increasing demand.
As country economies recover across the globe, the demand for freight transport increases. Currently, due to the high cost, producers face difficulties in making their products available, mainly to Europe and the US. According to Lars Jensen, CEO of Vespucci Maritime in Copenhagen, few experts expect container shipping costs to drop in the short term.