Shipping Industry Chaos: Why Are Rates Soaring in 2020?

There’s no doubt that 2020 has been a crazy year for everybody, but the effects have certainly been felt by the shipping industry. With the Covid-19 pandemic wreaking havoc on just about every industry, it’s hardly a surprise. Unfortunately, the impacts of the pandemic have led to a chaotic increase in shipping costs, and here’s why:

Capacity Constraints

The shipping industry has suffered from capacity constraints since Covid-19 hit. At least initially, there was difficulty getting shipments out of China, one of the world’s largest trading countries. This ultimately led to significant delays, with cargo ships often held up much longer than normal at destination ports.

With ships not able to make return journeys as quickly, the whole industry began to slow down, creating less capacity for shipping goods. Bloomberg reports that shipping rates are now the highest they’ve been since 2015.

Backlogs and Congestion

The delays associated with Covid-19 have also resulted in significant backlogs and congestion. Firstly, it’s been more difficult to get goods loaded onto ships for delivery. Then, there’s hold-ups at destination ports due to additional screening and health-related procedures.

Cargo is being rolled (not loaded due to lack of capacity), which means orders are backing up before they even get out on the sea. Essentially, the much higher demand and less capacity to supply creates a bidding war for space where shipping prices rise.

Industrial Action at Sydney’s Ports

Sydney is a big player in terms of Australian ports, and there have been ongoing industrial disputes compromising operations. The Maritime Union of Australia (MUA) have been negotiating for better pay and conditions for port workers.

Industrial action includes work stoppages, overtime bans, and delayed start times—all of which make it difficult for Sydney freight forwarders to efficiently manage the delivery of goods into the city.

Maersk Suspensions and Sydney Surcharges

A flow-own effect of the Sydney industrial action has been the suspension of services into the port by major shipping lines. Maersk, for example, is the world’s largest shipping container company, and they suspended bookings into Sydney for a long period. Plenty of other major shipping lines did the same, as a result of the serious congestion at Sydney’s ports.

The ban has now been lifted; however, Maersk has applied a Sydney Congestion Surcharge, in recognition of the still-present congestion and backlogs. 

Tips for 2021

With relative uncertainty about when shipping rates may start to decrease, there are a few ways you can plan for importing in 2021.

Firstly, get orders in early with your freight forwarder. The sooner you order, the better chance you have of securing space. It may not negate the high shipping costs, but it will ensure you can service your clients.

Secondly, consider using an air-sea solution for urgent cargo out of Europe. This can be a cost-effective way to cope with high transport costs.

And finally, keep up-to-date with shipping news, market trends, and ask for advice from transport professionals to keep your importing on track for 2021.


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