A report from research firm Statistica puts shipping costs in perspective. The industry remains forced to look for other ways to cut costs
HIGH POINT — For many months now, we have been hearing about — and the industry has been experiencing — historically high container rates not just in Asia but around the world. And while Asia may have the highest rates, other countries such as Brazil in the western hemisphere have also seen rates rise proportionally as if shipping companies there figured out they better catch up in order to cash in themselves.
Stories of rates rising from a few thousand dollars upwards to $7,000 and $8,000 weren’t uncommon for goods shipping from southern Brazil to Miami, for example. Of course this pales in comparison with the rates of more than $20,000 out of Asia, compared to $4,000 or less prepandemic. Yet it shows that inflation in logistics has been out of control no matter where the goods are being produced.
It’s been a game-changing dynamic, as importers have shifted their sourcing to places like Mexico and even the U.S. to avoid such high expenses, notably the expenses of shipping from Asia. One executive with RTA resource Bush Furniture recently told Home News Now that container rates of $18,500, compared to $4,500 prepandemic influenced the company’s recent decision to reshore certain products back to North America from China. That leaves us the impression that there won’t be much relief from these high rates anytime soon.
Actually, there has been some relief, at least in contract rates, sources have said of negotiations this past spring. That’s the good news at least for the time being. But how long will it last and what does it mean for the industry over the short and long-term?
A study by global research firm Statistica puts some of this in perspective. It recently published a survey that showed the rise in container rates between January 2019 — just as the pandemic was starting — to this past April, when it’s global freight rate index was at $7,800 for a 40-foot container.
Now, of course, that sounds a lot better than $20,000. But its also based on spot and short-term contract rates with the values being averaged for the last five business days of the month. They are also based on rates from around the world.
And to put things in perspective, its index showed container rates at $1,720 in January 2019 and $1,320 that July. So rates increased nearly six times between that low point in July 2020 to this past April, and nearly eight times to their peak of $10,360 in September 2021. This, Statistica noted, represented the highest increases in freight rates since a surge in 2008, just around the time of the financial crisis.
“The Covid-19 pandemic proved to be a disruption of such proportions to either bring to halt whole industries and supply chains, or severely reduce their efficiency,” the report said, adding, “Various events, such as port closures due to coronavirus outbreaks, port congestions, shortages of labor, a lack of new shipping containers, as well as rising prices of bunker fuel, made the business rather difficult and unpredictable. Moreover, imports from Asia to the United States increased by around 40% in 2021, compared to 2019, while the volume of exports stayed roughly the same. As a result of these factors, carriers have not been able to fully utilize their capacity and meet the demand for container shipping, driving freight rates to record levels.”
Perhaps some of this restates the obvious, but it helps put things in perspective. The question is, however, how much will container rates change moving forward, now that inflation appears to have severely curbed consumer spending, at least in furniture. Some sources are not overly optimistic, given that the shipping industry is now too used to the massive profits it’s made during the pandemic, which Statistica estimates reached an average margin of 56% compared to 8.5% a year prior. In real dollars that amounted to about $110 billion in profits in 2021, Statistica noted. It said that while some carriers are using these funds to boost capacity with new containers and ordering new container ships, the delivery of newly ordered ships “is still years away.”
This is perhaps why the industry is not overly optimistic that freight rates, particularly spot rates, will fall drastically anytime soon. Even if furniture shipments fall, there will still likely be plenty of demand across other sectors, from apparel and shoes to household appliances and other consumer electronics to fill any void in demand for shipping containers.
Again, the furniture industry will find itself competing for these consumer dollars, just as costs like shipping rates continue to add price pressures to finished goods. The hope is that consumers still have an appetite for home furnishings and that manufacturers and retailers alike find ways — be it reshoring, automation or even reengineering product to achieve cost efficiencies — to ease some of the price pressures moving forward.
It doesn’t appear we can simply wait for the shipping costs to go down.