“It turns out it’s a lot easier to create demand than it is to match supply”: Jerome Powell
By Wolf Richter for WOLF STREET.
Amid continued reports of container shortages, shipping capacity constraints, port congestion and a demand for goods fueled by a global stimulus – in part the result of the shift in consumer spending from related services to goods. to the pandemic – the cost of shipping these goods from Asia to Western countries has skyrocketed to new heights.
Average port-to-port spot rates from Shanghai to Los Angeles fell from around $ 1,500 per 40-foot container in early 2020, and from a five-year average of $ 2,177 to $ 4,000 in September 2020, at $ 8,000 in June and at $ 9,631. during the week ended July 8, according to Drewry Supply Chain Advisors. This would represent an increase of over 500% from the start of 2020 (green line in the graph below).
But it’s even worse: “We’ve heard about $ 15,000 from China to the West Coast and are aware that carriers are charging extra premiums on top of that to prioritize loading a late reservation before the normal FAK. . [Freight All Kinds] freight rate, ”says Drewry.
This would be ten times more than at the beginning of 2020!
Fares from Shanghai to Rotterdam went from less than $ 2,000 in early 2020 and from a five-year average of $ 2,486 to over $ 12,000 in July (yellow line).
Drewry calls this a “market shock” that began in June 2020 for Asia-US trade, shortly after stimulus money started pouring into trade; and it started in December 2020 for Asia-Europe trade. The two starting points are indicated by the flames. Five-year averages are indicated by the dotted lines (chart via Drewry Supply Chain Advisors):
As peak season approaches on Asian routes, Drewry said he expects “spot rates and the underlying capacity shortages to become even more acute,” and he expects that the fares “reach close to $ 20,000 on some routes.”
“The difference between this year’s container shipping market and that of the past 5 years has become glaring as spot rates have broken inflation records after record inflation,” Drewry said in his Executive Briefing on logistic.
Freight rates from Shanghai to New York hit $ 11,708 per 40-foot container.
Freight rates in the other direction, from Los Angeles to Shanghai, have also increased, but only to $ 1,326 per 40-foot container during the week through July 8. And from Rotterdam to Shanghai, the rates have increased to $ 1,740.
The amount of spot rates on the five-year average, the “premium” in the graph above, reached $ 7,000 to $ 10,000 per 40-foot container from Asia to the United States, Europe and over d ‘other main routes.
“For low value products, this unexpected premium cannot be absorbed by shippers, and we know from Drewry’s shipper customers that some export business is lost due to these extreme transportation costs,” Drewry said.
For 2022, Drewry expects tariffs to be “considerably higher than in 2019” and that “there will be an easing of extreme spot rates, but no return to” normal “freight rates in the future. all. “
Thus, the extreme peaks in spot rates, some of which are still expected in 2021, will be transient by 2022, but the rest of the higher rates will be persistent.
Part of the reason for the shortage of containers is that container ships are embroiled in port congestion that continues to disrupt the shipping industry. Marine Traffic shows this image of the Los Angeles and Long Beach ports. Roundabouts offshore have around two dozen ships awaiting unloading, although this is down from peak congestion of around 40 ships in early February.
According to data from the Port of Los Angeles, the average number of days at anchor and dock for today was 8.5 days and many days are in double digits, including June 29 (10.7 days), July 2 (12.2 days) and July 7 (13.7 days).
The Port of Los Angeles set records in terms of the volume of loaded containers imported. The volume of the container is expressed in the standard TEU (Twenty-foot Equivalent Unit), where a 40-foot container counts as 2 TEU. For the five months of January through May, the port imported 2.37 million TEUs in loaded containers, according to data from the Port of Los Angeles. This is a 26% increase from the previous peak period from January to May 2017:
As Fed Chairman Jerome Powell brilliantly observed, after $ 4 trillion in quantitative easing since March 2020, accompanied by a $ 5,000 billion increase in federal government debt, caused by deficit spending – $ 9 trillion in fiscal and monetary stimulus in total – in addition to similar stimulus. in other countries around the world: “It turns out that it is much easier to create demand than to match supply.
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