Global shipping rates are surging. Not quite to early-pandemic levels, but in that ballpark. What’s causing this is a perfect storm of conditions, including worries about actual storms … and a lot more.
“The cost of shipping a container from Shanghai to New York, for example, has tripled this year,” said Tim Denoyer, senior analyst at ACT Research. A container that cost $3,000 to ship at the beginning of the year now costs $7,800 — about half the level of the dystopian prices at the peak of the pandemic, but still “significant, for sure,” he said.
The most obvious cause is in the Red Sea, where a Yemini group known as the Houthis are attacking ships in solidarity with Palestinians in the Israel-Hamas war. “The Houthis are firing missiles at basically every Western commercial vessel that tries to go into the Red Sea right now to transit the Suez Canal,” Denoyer said.
Ships that would go through the Suez now go around South Africa. The Suez Canal lost a quarter of its revenue in the past fiscal year.
William Balash, the CEO of Quandary Shipping and a consultant at Shipwithbill.com, has had to explain to customers why ocean freight has become so expensive. “The boat has to be rerouted, it’s gonna take a longer time now. You’re talking additional fuel costs, additional labor costs. Those workers are stuck on the ship now for a longer period of time.”
But a boat going from Shanghai to New York doesn’t need to go through the Suez Canal, and a lot of other trade routes steer entirely clear of the area. Yet ocean shipping prices have jumped nearly everywhere.
“That’s because it’s a global market for shipping,” explained Ryan Petersen, CEO of Flexport. “So they’re taking some ships that would normally be going across the Pacific and routing them to support the extra capacity needed for the longer journey around Africa. That’s actually reducing the supply of shipping effectively,” he said.
But trouble in the Red Sea was only the start. A drought this year lowered water levels in the Panama Canal; there were also storms in Asia. And on top of everything else, retailers in many places have decided to bring their goods in early.
“Seasonal front-loading,” as Beth Ann Rooney put it. Rooney is port director for the Port Authority of New York & New Jersey. Retailers are looking at a predicted nastier-than-normal hurricane season, as well as upcoming labor negotiations at East and Gulf coast ports. It has those retailers thinking about Christmas now.
“So, typically in U.S. ports, Christmas is happening in July and August, maybe the first two weeks of September, so it appears as if shippers are trying to get ahead of that Christmas rush,” Rooney said.
That’s just put supply and demand further out of whack. With one hit after another, the sprawling global trade network has been knocked off balance. While U.S. ports have not become congested, other key ports have — in the Mediterranean, Singapore and Sri Lanka, according to maritime research consultancy Drewry. It’s showing up not just in prices, but in the very containers that carry goods.
“Containers being in the wrong place at the wrong time,” said Eric Oak, a supply chain analyst with S&P Global Market Intelligence. Just as goods move around the world, empty containers have to move too. With ships being diverted, the empty containers aren’t always getting to where they need to go.
“Without those containers to load, with goods to ship and then unload, obviously the wheels of global trade grind to a halt,” Oak said.
So far, ocean trade has not ground to a halt. It’s just a lot more expensive.
