There’s little likelihood of a reduction in logistics costs in light of the cost of shipping containers, which has reached record highs.While it used to cost $2000 to ship a standard 40-foot container from China to the US, this figure has ballooned to a whopping $12 000 or even more.With containerised shipping underpinning the transport and delivery of all global manufactured goods, the ongoing surge in freight rates is of growing concern across the supply chain.“This boom-bust cycle in container shipping prices is good for no one,” said Steve Saxon, a partner and logistics expert at leading consultancy McKinsey. “Arguably, container lines are making more money than ever before, but they have serious operational challenges to deal with and are struggling to meet demand. Shippers are desperate – and even at these prices are not able to secure the capacity they need to ship their goods.”According to Jaana Remes, also a partner with McKinsey, the Covid pandemic has resulted in consumer and consumption patterns shifting dramatically.“It brought about a change that has never been seen before in any of the other downturns. The demand for services dropped overnight, while the demand for goods increased rapidly.”In the United States alone, imports spiked by 40%. “Essentially, the same thing happened all over the world. The logistics infrastructure was simply unable to handle the demand and massive spike in volumes, and the entire system slowed down in light of large-scale congestion.”And while container vessels were pulled out of the system during the initial outbreak of the pandemic in early 2020 in anticipation of a drop in demand, container lines had returned to full capacity by September. But they were still unable to provide the necessary capacity for the growing volume of goods needing to be moved.With an unprecedented number of container ships currently on order, lines are doing everything they can to ramp up capacity, but are still falling short. Congestion is further exacerbated by the ongoing lockdown restrictions and outbreaks of Covid-waves at ports.“The reality is that it takes 18 months to build a container vessel, and so we will not be seeing any of the ships on order on the water soon.”To make matters worse, consumers are not slowing down in their spending – and with the traditional peak season build-up already under way, rates are expected to remain high for the foreseeable future.“The spike in rates has nothing to do with the demand increase, but everything to do with the reduction in capacity that has appeared in the system,” said Saxon.Locally, the picture is not much different. According to Malte Kersten, group CEO of Polaris Ship Agency, the biggest logistical challenge remains the shortage of containers and space on vessels.“Due to the container shortage and space shortage, many shippers are trying to find alternate solutions. This has increased the freight rates drastically for both exporters and importers, making South Africa’s products more costly inside and outside of the country.”According to Saxon, while rates will remain high for some time to come, some changes are taking place. “We are likely to see a shift towards more longer-term contracts between container lines and shippers that include specific volume commitments.“We cannot rule out that industry will return to an oversupplied situation again.”We are likely to see a shift towards more longer-term contracts between container lines and shippers that include specific volume commitments.– Steve Saxon
