The pandemic hit in 2020 and disrupted supply chains globally. This disruption caused delays and challenges for everyone involved, resulting in rising freight prices. Still, few expected that prices would continue to rise and skyrocket well into 2021. The Drewry World Container Index, which tracks the average price of a 40-foot shipping container, reported an all-time high in June with the average price rising to a whopping USD 6,957, which is an eye-watering 305.7% increase when compared with the same time last year. More popular routes such as those between China and Europe have even seen rises as high as 505%.
SMEs, in particular, are suffering as a result of these high costs of shipping, with many even being priced out entirely. Many Indian agri-commodity exporters, for example, have decided to simply avoid long-distance business completely for now.
What is Behind the Chaos
Currently, the world is experiencing a shipping crisis of unprecedented proportions, largely triggered by the global pandemic. Many operators reduced capacity, not expecting the economy to bounce back so soon. However, demand recovered faster than expected and supply is still to catch up.
In addition to this, there is presently a global imbalance of shipping containers and empty containers are often in the exact opposite place to which they are actually required. This is because shipping lines opted to not return empty containers to supply hubs, due to the massive initial drop in demand at the onset of the pandemic. Furthermore, port delays caused by the pandemic are exacerbating the situation. Amidst these factors, the laws of supply and demand are coming into play with the supply of shipping space far outpacing demand, resulting in price increases.
When Will It End?
Presently, the end of shipping disruptions is not in sight. It could potentially be some time in 2022 before things begin to subside. Thus, presently, SMEs should focus on high-yield products that are still economical to ship, while holding back on products that are not. It is also a good time for suppliers to explore markets closer to home, which may be more economically accessible. Some buyers are also willing to share freight costs with suppliers, in order to make it economical for both parties. Thus, this is an excellent moment for SMEs to form lasting partnerships to foster future growth.
Bumper Day for Shipping Lines
While suppliers around the world suffer, shipping lines are having a record year, which is not undeserved, considering it is a business usually lacking in profitability. Shipping companies have been raking in unprecedented profits as a result of the high prices. Cosco, a Chinese shipping behemoth, for example, posted a 2,600% growth in profit during Q1, while Moller-Maersk’s Q1 profits alone exceed its entire net profit for 2020 at USD 2.7 billion!
