GPC: Looking back on the container crisis: experts in South America weigh in on whether rates will return to normal soon

Date: 22nd August 2022 Category: Latest News
GPC: Looking back on the container crisis: experts in South America weigh in on whether rates will return to normal soon

GPC: The shipping container crisis is a many-sided problem faced by importers and exporters of all kinds over the last few years. The pandemic started a cascade of negative consequences for the shipping industry, leading to a scarcity of containers, skyrocketing freight rates, and decreased confidence among traders looking to fulfill their contracts on time.

Starting in 2020, lockdowns around the world caused a disruption in global trade that sent shockwaves through supply chains, consequences of which continue to be felt today. The drastic changes in demand provoked a scarcity of containers and dramatic rises in freight prices, as well as extra premiums and surcharges

Angelino Arenas, commercial manager of RUCA Logistics, a freight forwarding company in Buenos Aires, explains the shock of the price rises: “Before covid, we were paying around $1500 from Shanghai to Buenos Aires for a 20 foot container. After Covid, at its highest point we paid $16,000.”

“Today,” continues Arenas, “we are paying approximately $10,000 for the same route for spot rates and contract rates. It’s getting better, but it’s not improved enough yet.”

At $10,000 per container, this is still a more than 550% rise from the pre-pandemic price. Bloomberg reported on the 23 June that long-term contract rates for 40-foot containers between China and the US West Coast are more than double what they were the previous year, whilst short-term or ‘spot’ rates are nearly 50% more than their 2021 equivalent.

These China-USA routes are where the container crisis began, firstly with a drop in commerce between the countries after President Trump’s trade war against China, which had already slowed Chinese exports to the US by 23% by November 2019 and may have contributed to the later rush to rebalance imports too quickly. 

Early 2020 saw the arrival of the pandemic.

“When COVID came,” says Arenas, “at first the US couldn’t import from China because it was locked down, so they started to lack certain products. When they finally were able to import again, they doubled the amount they were importing. Extra vessels were sent to the China route to cover the demand. If a vessel of 8000 TEUs (20ft Containers) went to China, then the 8000 containers naturally went with them.” 

Not only were the containers disappearing into the China route, but by mid-2021 the prices of containers had shot through the roof, passing $20,000 for a 40ft container from China to the US - a rise of 500% year on year.

The price surges and scarcity of containers have plagued pulse traders since the crisis began. In an interview with the GPC earlier this year, Sahid Hernandez, trade manager of Terminel in Mexico, noted that by May the price of shipping with MSC from Mazatlan port had climbed to $120 per tonne from just $70 per tonne pre-pandemic. 

These price shifts continue to affect import/export costs, in some cases dampening traders’ motivation to export pulses via maritime freight at all, especially from certain Latin American ports which are less amply covered by the cargo carriers. This is not only for reasons of cost; space for containers on vessels has become less reliable, even when reserved in advance.

Ramiro Berraz of Legumbres Argentinas, a pulse producer and trader in the Salta region, spoke with the GPC in late 2021 about the growing unreliability and potential for surcharges in maritime freight. Those problems, he says, continue to this day:

“Right now I have a great deal of dark red kidney beans that I could happily send to Europe or Central America but I’m not sending it via container because of all the potential charges and costs.

“When the containers arrive in the port, they’ll say: ‘your product has been delayed’, ‘there’s no space’, or ‘there are no containers’, so your product gets delayed one week, then two, and suddenly you’re paying the surcharges. It’s a big mess I’d rather not get involved in.”

The freight costs have led to more exporters within South America choosing to truck freight to neighboring countries, says Arenas:

“Companies in MERCOSUR who used to import/export around the world at $2000 per container are now being charged $6000 or $8000. If you have a country inside South America that gives you a price of $2000, well, you change your destination. That's logical."

It seems clear then that businesses are adapting, but will they need to adapt further? Can such instability and price surges continue?

The prices for China to US maritime freight are a good barometer for the general state of shipping, as price decreases on those routes can mean more container availability on other, less high-priority routes, which has a knock-on effect on price. In the second quarter of 2022, the Transpacific Eastbound Market (TPEB) slowed, and rates fell by 10%, most likely due to Shanghai’s COVID lockdowns. However, those rates are continuing to fall after the lockdowns have ceased. 

The prices are still well above pre-pandemic levels and, for the Latin American ports, a return to normality doesn’t appear to be close for the moment. Arenas predicts a significant wait:

“I think the crisis should be solved in 2023. My point of view is that it may be the second half of 2023, but the shipping lines believe it could be solved before that, even in the first half of 2023.”

The Drewry World Container Index, which tracks world container prices overall, using both contract and spot rate data for 40ft containers, saw a drop of 2.6% over the week leading up to July 21st. This continues a consistent overall downwards trend that began at the end of February - Trans Pacific spot rates halved from April to July.

In general, this consistent fall in prices appears promising, but the pace of the return and the potential effects of continued war in Ukraine suggest there is a long way to go before we see a return to the stability of shipping markets as seen before the container crisis began.