Shipping companies curb soaring container prices – Quartz

Shipping container prices could stabilize after a year of deteriorating service, regulatory threats and complaints from retailers as prices soared.

The cost of a 40-foot container fell slightly from $ 10,377 the previous week to 10,360 last week, or 0.2%, depending on the Global Container Index by Drewry, a London-based maritime research company that tracks east-west routes. The tariff is three times the price of the previous year thanks to strong demand in the United States and congested ports pulling up vessel capacity.

Simon Heaney, senior director of container research at Drewry, says average spot rates have leveled off over the past two weeks because carriers including Hapag-Lloyd and CMA CGM, two major container lines, have announced in September that they would freeze the rate increases afterwards by raising them sharply for 22 consecutive weeks. “We believe other lines are doing the same, but unofficially,” Heaney said.

CMA CGM’s spot rate cap is expected to expire on February 1, 2022, while Hapag-Lloyd has not set a fixed date.

Hapag-Lloyd said they froze rates because they had reached their peak, while CMA CGM said it prioritizes its long-term relationship with its customers given the “unprecedented situation in the shipping industry”.

Heaney noted that shipping companies “are under significant pressure from shippers and regulators” to restrict their rates. By freezing spot rates at such a high level, “it’s a relatively cheap gift,” Heaney said. “Some shippers ask why now and why not go further? “

Shippers – importers and retailers who pay to put their products on container ships – have expressed anger what they saw as a “price hike” from shipping companies reaping unprecedented record profits in lean times. A CEO of a Philadelphia home decor company has filed a complaint with the Federal Maritime Commission, the US agency responsible for ensuring the oceanic supply chain is competitive and fair. In a meeting with The charging star, a supply chain outlet, he called the high tariffs and poor service “outrageous conduct” on the part of the shipping companies, which “would ripple through the entire US economy” and accused them of ‘have operated a cartel.

James Hookham, Director of the Global Shippers’ Forum, reacting to the CMA CGM announcement, said The charging star: “It is as if the torturer asks the prisoner ‘Aren’t you grateful that I no longer turn the screw on the rack?'”

The historically high rates caught the attention of the Biden administration, which issued a decree in July indicating that regulators are watching the industry for uncompetitive behavior. Based on information published in the Washington post“The White House officials who drafted Biden’s order say the high transportation costs, resulting from a lack of competition, are dragging the entire economy down.” Assistants acknowledge that the pandemic caused much of the disruption, “But they say the lack of competition has allowed freight carriers and railways to exploit the pandemic by pushing prices to all-time highs.”

Profits or profiteers from shipping companies?

Companies are driving up shipping costs by competing for limited space on the world’s container ships. As booming supply chains have increased some operational costs, Heaney said, carriers are “making more money than they’ve ever made”, with revenues far exceeding rising costs.

This has generated extraordinary benefits for shipping companies. In his month of August income statement, Copenhagen-based Maersk, the world’s largest container line, reported net profit of $ 3.7 billion in the second quarter of 2021, an eight-fold increase from the same period last year, citing “exceptional circumstances in the ocean”. For Hapag-Lloyd, revenue grew 51% in the first half of 2021, with profits of $ 3.3 billion. CMA CGM, also achieved a record profit of $ 3.5 billion, a 2,500% increase from the same period last year.

This has a big impact on small and medium-sized retailers, who cumulatively account for a significant portion of manufactured goods traveling between Asia and the United States, but whose individual annual sales may occupy only a handful of containers. per year. These small businesses are at a disadvantage, unable to compete in volume or capital.

Many are overpriced in this market, seeing their stocks run out as the all-important Christmas season approaches, while their goods remain in a container in Shanghai. Nothing less than a miracle would get them on a ship in time.

Even when they can secure container space, retailers selling low-value products with low margins (like a squeaky cat toy, for example), “are probably having trouble right now,” says Nathan Strang , Senior Director of Ocean Operations. at Flexport, a freight forwarder based in San Francisco. The cost of shipping a container may be more than the profit they can expect to make from what is in it.

Big retailers like Costco, Walmart, Home Depot, and Target have taken extreme measures to ensure their merchandise arrives on time. they have chartered their own dedicated ships – an expensive and unusual move – and stranded at premium rates above $ 20,000 to ensure their containers are loaded onto a ship or shipped with goods destined for Christmas in June, paying for several months of storage in warehouse.

Unfulfilled demand in the face of China’s electricity crisis

Relief from the price hike does not guarantee the trend will continue into 2022, says Strang of Flexport. Low stocks at retailers across the United States mean they will have to continue shipping merchandise to restock after the peak Christmas season. A further drop in prices could prompt more retailers to resume shipments, pushing prices up again.

Another disturbance may be on the horizon. Power rationing in China last week forced temporary shutdowns of its industrial manufacturing centers, and some shippers and freight forwarders in Asia have reported lower container tariffs. Caixin Global, a China-based outlet, reported that an executive at a Shanghai freight company saw container rates from China to the US west coast almost in half, from $ 15,000 to $ 8,000, due to reduced supply due to power outages.

It’s too early to say, said Simon Heaney of Drewry, whether a manufacturing slowdown in Asia will affect overall container prices. It remains to be seen how long the power outages will last and to what extent they will affect the ability of Chinese factories to continue to produce goods for the United States. “Until then, I can’t really give you a confident assessment,” Heaney said. But if that happens, Heaney added, it could lead to a slowdown in US demand. This would allow shipping, ports, rail and trucking to recover and begin to restore a smoothly functioning supply chain, and this would lower the price of freight.