"Up 4 Times"... Growing Concerns Over Logistics Crisis Amid Soaring Shipping Rates

[Asia Economy Reporter Yujin Cho] There are concerns that skyrocketing freight rates due to trade imbalances could trigger a global logistics crisis. Shippers stranded without containers are paying premiums, driving freight rates up, with some routes seeing rates increase by up to 4 times.

According to US economic media CNBC on the 24th (local time), freight rates on Asia-to-Northern Europe routes rose 264% year-on-year last month, while rates from Asia to the US West Coast increased by 145%. Mark Jaeger, CEO of Redwood Logistics, stated, "For China-to-US and European Union (EU) routes, rates surged 300% compared to last year's low point." He added, "For short-term freight rates rather than long-term, the increase is even greater, with some routes seeing rates rise up to 400% year-on-year."

The strong freight rates stem from trade imbalances. Amid the contraction of international trade due to the COVID-19 pandemic, only China has experienced a boom, increasing the volume of China-originating shipping capacity. This supply-demand imbalance has led to a shortage of container boxes. Export containers from China are stranded at ports in the US and EU after unloading because they cannot be filled with return cargo. It is estimated that a total of 180 million containers are stuck at ports across the US and EU.

China was the only country worldwide to see a net increase in cargo trade last year. China's trade surplus with the US reached $316.9 billion last year. Bloomberg noted, "The COVID-19 pandemic and ongoing movement restrictions fueled demand for medical supplies and home electronics, contributing to the surge in Chinese export volumes."

Meanwhile, the COVID-19 impact once halted the production of new containers, further fueling freight rate increases.

IKEA's Singapore division stated, "A global transportation crisis has begun," adding, "While demand for logistics services is growing worldwide, container shortages and increased congestion at ports are exacerbating the crisis." IKEA analyzed that among the 8,500 products sold in Singapore, about 850 (approximately 10%) are affected by shipping delays.

There are also forecasts that the sharp rise in freight rates will lead to higher product prices. CEO Jaeger predicted, "Many companies are struggling with whether to pay premium freight rates or delay shipments, but ultimately, price increases due to rising freight costs are inevitable."

Given the container supply-demand imbalance and worsening port congestion, freight rate stabilization seems unlikely in the short term. With the Chinese Lunar New Year approaching, some expect freight rates to rise further. The Shanghai International Shipping Center in China forecasted, "The global freight rate increase due to container shortages will continue for more than the next three months."