Who’s really feeling the shipping cost squeeze?

Another week, another surge in shipping costs. But just how big has the surge been? It all depends on who you ask.


Over the past seven days, the price of taking a 40ft container-full of goods from the Far East to the US West Coast has, according to shipping cost calculators Xeneta, risen by another 3.6 per cent. Over the course of August prices are up a shade under 20 per cent.


Xeneta says the average Transpacific rate is now $7,574. Other data outfits, however, such as Freightos, say the cost to transport goods from China to the West Coast has been as high as $15,800 over the past month.


That’s an almighty gap. Yet neither figure is necessarily wrong.


That’s because what we’re seeing at the moment in the market for shipping goods across the world’s oceans is not only unique in terms of expense, but also in terms of the gap between what different exporters are charged.


Xeneta’s indices are calculated using the cost of shipping for a variety of exporters — some household names, some little known. The headline figure is based on an average of what those exporters pay. Right now, those rates are not only costly they are also vastly different depending on factors that have long mattered a little, but now — with capacity tight and pandemic-related delays persistent — mean an awful lot more. According to the firm, it’s possible to take a container across the Pacific for as little as $5,500 or as much as $20,000. Staggering.


What makes shipping goods across the Pacific far more expensive for some than others? There are a few factors.


It’s long been cheaper to ship from mainland China than from Taiwan or Japan. But right now it can cost up to 40 per cent less, as opposed to around 5 per cent — the difference pre-price surge. The same goes for the destination of your cargo. Taking your wares to Canada’s far cheaper than trying to get your goods dropped off in Los Angeles, where delays in docking persist.


If you need the goods fast, then expect to pay a lot more too. Again, this has always been the case. Shipping is, after all, a highly cyclical business, with prices fluctuating as demand rises and falls during busy and quiet periods of the year.


Exporters with a good relationship with shipping lines have long paid lower rates. In 2020, they could expect to pay 5 per cent less than the worst customers, now it’s more like a fifth. What counts in the eyes of the lines is how much volume you require, with those exporters in constant need several containers’-worth of space better able to set their terms. “Being big is really a massive competitive edge in this market,” says Patrik Berglund, CEO of Xeneta. “If this [tightness in the market] lasts, the bigger firms could snatch even more of the advantage.”


This massive competitive edge that’s emerging in the market for shipping freight is akin to what happened in banking during the great financial crisis. That distress gave the likes of JPMorgan and other banking giants the opportunity to entrench their position as the dominant players through cost advantages. They had more access to funding — and at cheaper rates. If advantages such as these persist in shipping too, there may well be a case for similar state intervention on antitrust grounds.


To put it succinctly, if you’re a small business who every so often needs goods from Japan shipping fast, then you’re screwed. At least until demand starts to ebb around Chinese new year 2022. What with the current time of the year usually being when demand picks up in advance of Christmas, expect things to get worse before they get better.


As Erik Devetak, Xeneta’s chief product and data officer, put it, what we’ve seen develop since the summer of 2020 is “a very nuanced market where there’s winners and losers, much more than ever before.”


Which pretty much sums up the economic story of the pandemic.


This article originally appeared on Financial Times

Photo: Getty Images


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