Chapter 5: Rising freight and cargo prices, why and what are the forecasts?

CHAPTER 5

RISING FREIGHT AND CARGO PRICES - WHAT’S THE REASON?

FREIGHT AND CARGO MOVED ON DIFFERENT ROUTES FROM LATIN AMERICA (PERCENTAGE)

10.0%

5.0% 2.3%

0.0% -0.2%

-5.0%

-10.0%

-15.0%

-20.0% -3.5%

-11.8%

Europe 8.0%

2.2% 7.0%

1.5%

0.2%

-2.5% -2.3% -6.0% -6.0%

-9.9%

-16.2%

-18.9% Asia North America Middle east + indian 1.5% 1.0%

-9.80%

Within Latin America

Variation exports Freight Variation exports Variation imports Freight Variation imports

Source: Economic Commission for Latin America and the Caribbean (ECLAC) based on information from Drewry.

Comex

The increase in product prices, the scarcity of raw materials and the high costs of container shipments are other concerns for industry businessmen in terms of distribution and logistics. In addition, it is possible that the supply of some integrated systems, equipment, among others, may decrease. In relation to this, if there is an increase in demand in this scenario, the price increase would be much higher.

Alessandro Nicita, economist at the UN trade agency (UNCTAD), explains that it is the strong recovery of exports in the world that is generating a real shock: “If trade were depressed, there would be no crisis”.

According to Javier Diaz, president of Analdex, “this situation has generated a shortage of containers, defaults in itineraries and an accelerated increase in transportation costs. Thus, the average freight rates of 20-foot units from China to Latin America, for example, are now almost five times higher than the average of the last 12 years”.

Before the pandemic, shipping a container from Asia to Latin America and vice versa cost an average of $2,000 USD and sometimes as much as $1,500 USD, and today it is hardly possible to get sea freight on that route for less than $8,000 USD. The Asia-Europe corridor, on the other hand, reaches rates in excess of $10,000 USD and up to $14,000 USD for a single voyage.

This is in addition to the increase in freight rates from Asia to the Americas. According to data available from the Freight Baltic Index (FBX), freight rates have been increasing over the last year. Such is the case from the East Coast of North America to China/ East Asia (10% increase) while from the East Coast of North America to Northern Europe there is a decrease of 18%. Thus, the price volatility for freight rates is 2.3%. The prices for these areas remain at $10,519 USD, which is equivalent to an increase of 2 %.

From another point, as shown by the SFCI index, which is the most used indicator to measure ocean freight rates and analyzes the costs of routes with China for 20-foot containers, this has gone from just over 700 points at this time in 2019, to more than 4,500 points at the end of August, i.e., a growth of almost 530%. This figure is higher on some routes.