Transportation costs of freights have risen sharply, and experts believe that there’s no chance of a reduction in the rates in the future. Be it the shipping costs of dry bulk or containers, the industry has witnessed a new surge in prices at the beginning of this year along all the major routes across the world. These rates are likely to increase more in the latter half of the year. Here are some of the reasons why freight transportation costs will continue to rise.
Pandemic has influenced the freight industry adversely. As the world started to cripple down by the effect of the pandemic, problems started to build up in the shipping business. An imbalance was observed in the demands of goods and production. Different countries started implementing lock-down rules. Freight companies cut down on the capacity of their liners as well as stopped many trade routes.
It led to the deficit of vacant containers.
As we are in the recovery stage now, we are witnessing a steady increase in the global demand in every business sector. It is increasing in manifolds, especially in the international trade markets. Competition for shipping capacity has risen enormously. It is one of the prime causes for the increase in the rates.
Presence of very few alternatives
Ocean freight is responsible for the shipping of bulk goods across borders. The other alternatives of international freight shipping of items are either air or land freight. But none of these two possess the capacity of carrying goods as that of an ocean liner. So, ocean freight remains the only choice of many shippers. The absence of alternative ways of transportation has led to the rise in the price of shipping. The spike in rates will now directly impact the hike in the price of commodities. There’s a high chance that customers may have to deal with the lack of availability of products also.
An unbalanced recovery
After the world started opening up after the lockdown period, every country followed different rules in doing so. Many countries started exporting more goods than they used to in the pre-pandemic time. But, on the other hand, some countries were lagging in the retrieval process. This unbalanced recovery is likely to aggravate the problems of the world trade market. The freight rates are again going to get affected by this.
Delays caused due to port congestion and closures
People of the freight business saw many ports closing down and the effect was felt by everyone related to the trade. Even though many ports have resumed their activities, they have to maintain a strict regime to contain the spread of the Covid-19 virus. Such issues are causing port congestion, and delays are happening in the shipment process. The added shipment charges are thus increasing.
With the introduction of new ocean liners, we can expect the price to ease a bit. But according to the experts, the demand cannot be met before 2023. When the recovery process is over, the pressure on the shipping costs is likely to ease. But do not expect the freight rate to return to its pre-pandemic era.