As per Freightos Baltic Index, the global freight rates at the end of March 2022 were up 126% compared to last year. North Europe – US East Coast saw the highest rise of 219% for the period, followed by Asia – US East Coast at 200%.
The freight rates have increased globally and across all mediums, including sea, air, or road.
While we can perceive that a lot of it has to do with how the pandemic has panned out and disrupted the existing supply chains, there is more to it than meets the eyes.
As per an industry insider, HGV drivers continue to be in short supply throughout Europe, with an approximate shortage of 400,000. It would inadvertently lead to a spike in freight rates within the continent and whatever comes from it.
This article discusses six key reasons why we expect ocean freight rates will continue to soar in 2022 and the foreseeable future.
Ocean freight rate increase in 2021
Ocean freight, while fixed when looked at from a distance, has an air of uncertainty around them.
The price of shipping goods from one location to another via sea depends on a plethora of interplaying factors. These include intended destination, container capacity, fuel charges, exchange rates, and more.
Read here to learn about “Factors that affect ocean freight rates.”
Reasons why sea freight rates are expected to go up in 2022
Here is why we expect the sea freight prices to continue to torment the global supply chain through 2022 and even 2023 –
- Labour shortage
“The shortage of drivers is seriously disrupting supply chains in European countries as economies recover and demand for transport services increases.” – Vincent Erard, Director of Corporate Services, IRU.
While the global sea supply chain is suffering from an aging workforce, the issue is more prevalent in the European and American markets.
The profession has failed to attract youngsters, and the current average of drivers is over 50. The reasons behind such an occurrence are multiple.
From low earnings to unfavorable working conditions coupled with long working hours have propelled Gen Z to look for alternatives.
2. Uncertainty regarding oil prices
Since the last year, oil prices have been in a league of their own.
Add to that the Russia-Ukraine war, the oil pricing remains highly volatile. Current oil buyers are almost paying 1.5 times compared to that in December 2020.
It has had a spiraling effect on sea and other freight services and has resulted in buyers shelling out significantly more money.
3. A shift to ecommerce
When the lockdowns happened in 2020, people were forced to shift to online shopping. Such a phenomenon was even experienced in rising economies, which led to a spike in container space demand.
It started taking a toll on the already tight capacities of sea freight. It has forced logistic professionals to redo their maths and understand how they can manage global demand effectively.
4. Port congestion
March 2021 saw the shipping vessel Ever Given getting stuck in the Suez Canal, which had the entire passage blocked for seven days.
With 12% of the world’s trade happening through the canal, the incident resulted in USD 2.2 to USD 3.9 billion being lost in international trade because of this unwanted halt.
In addition, port congestion is a significant issue in countries such as the US. It has resulted in few vehicles being able to meet their deadlines and the rest having to suffer from an extended delay for their shipments.
5. Not enough financial recovery for some economies throughout 2021
Many economies are exporting more goods than they did before the pandemic levels. Whereas others are still trying hard to recover and are still lagging.
While there is little doubt that sea exports are expected to rise, the rise has been minimal and uneven, which has exacerbated the impact on the sea freight rates.
6. Container shortage
Because of the unforeseen effects of the pandemic, massive quantities of shipping containers have suffered from dislocation, and they are yet to recover.
Even today, empty containers have been stuck in understaffed, locked-down, or congested ports, resulting in high pressure on existing containers to meet excess demand. Such an imbalance has caused an increase in global sea freight.
When will ocean freight go down?
Not anytime soon. The pandemic is still very much around, and the current Ukraine-Russia war is not helping the cause.
So while we do not want to play the blame game, it is imperative for customers to be more cautious and choose the more reasonable shipping options while placing their orders.