The cost of shipping a standard 40-foot container from Shanghai to New York has ballooned to nearly $10,000, placing increased pressure on the country’s importers with some saying the market is experiencing a bubble.
According to the Drewry World Container Index’s spot rate, the cost to ship a single container was $9,387 on July 11, more than double the February rate but still below the pandemic peak of $16,000.
The spike in cost is being partially attributed to attacks by Yemen’s Houthi rebels which are forcing ships to avoid the Suez Canal trade shortcut.
Ships are preferring the less treacherous route around Africa, which takes more time as fleets struggle to move the same amount of cargo. This is causing shortages, schedule disruptions and delays which is driving up the costs for ship transport which accounts for approximately 80 percent of international trade volume.
Both shippers and U.S. retailers are attempting to address the issues by ordering and bringing in goods earlier than normal. However this approach has resulted in rates ballooning for the peak season; back-to-school, Halloween and Christmas.
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Simon Heaney, senior manager for container research at Drewry believes the current shipping environment is experiencing a bubble, “It is a bubble and it will eventually pop,” he told Reuters.
Industry insiders expect there to be a correction in shipping prices sometime in the first half of next year. However, until then, shippers will have to stomach the inflated price for shipping and end-use consumers will, in many cases, have to be prepared to absorb the added costs.
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Importers brace for increases
However, Greg Davidson, CEO of Lalo, an importer of stylish infant high chairs through Pottery Barn Kids stores, says shipping prices are a sort of “black box” and that both large and small shippers in his professional network believe rates could soar to as high as $20,000 per container.
Davidson believes that should Donald Trump win the general election in November, he will impose sweeping new tariffs on imports, prompting importers to rush to import goods before the tariffs hit, causing prices to soar.
Meanwhile, this month, even though shipping volumes remain below pandemic highs, the Shanghai Containerized Freight Index rate set a new record, hitting $8,100, while the Drewry’s index hit $12,400 per container on that specific trade lane.
The soaring prices have prompted large shippers, including Maersk and Hapag-Lloyd to raise their profit forecasts.
In a client note, Deutsche Bank Research analyst Andy Chu wrote, “It is difficult to understand the magnitude and pace of the rate rises.”
He believes that a drop in consumer demand may tame price increases, saying, “If demand is not sustained then rates could normalize quickly.”
