As the cost of shipping skyrockets globally amid the COVID-19 economic crisis, ONYEKORMAKA ASABOR writes on ways proffered by UNCTAD and other stakeholders to cushion the effect on consumers
The wake of the Coronavirus Disease disrupted the global economy, and the maritime sector was not spared. The cost of freight soared, pushing up consumers’ spending. However, stakeholders have suggested ways to alleviate the suffering, especially of consumers.
The Head of Trade Logistics, United Nations Conference on Trade and Development, Jan Hoffmann, in an analytical report, noted that in the heels of the pandemic, the cost of shipping reached unprecedented highs.
He said the cost of shipping one standard 20-foot container from Shanghai to Brazil, for example, shot up to nearly five times higher than the average of the last 12 years, explaining that the surge in freight costs and surcharges in container shipping were occurring amid reduced service reliability, a key performance metric for shippers and supply chain managers.
His view, no doubt, is not different from that of Nigerian shippers, who, few weeks ago, expressed worry over the increase in shipments costs from Europe and Asia to Lagos, from less than $3,500 for a 40-foot container to $13,500 due to scarcity of empty containers.
According to him, containerised shipping underpins the transport and delivery of manufactured goods, including inputs, parts, components and consumer goods.
Financial Street gathered that the shipping companies in Istanbul, Guangzhou, Antwerp and Beijing have run out of containers to ship goods to Nigeria, while findings suggest that most containers sent in the last 10 years have not been returned.
The President of Shippers Association Lagos State (SALS), Jonathan Nicol, said most of the empty containers abandoned in Nigeria by shipping companies expired and could not be shipped back to their countries of origin.
While highlighting the strains maritime supply, he said a set of COVID-19-induced factors combined to cause the strain on the maritime supply chain.
He said, “First, among them is the unexpected and unprecedented swift rebound in containerised trade enabled by an early and rapid recovery in China. This is coupled with massive policy support measures in the United States and Europe that supported household income and expenditure, growth in e-commerce and increased pharmaceutical and home-office purchasing requirements.
“Second, the turnaround time for containers, trailers, and ships in ports and intermodal transport links are slower than normal, as ports, transport providers and shippers have to comply with health regulations and social distancing.
“Third, supply capacity is not growing fast enough to catch up with demand, and the ability of ports to adjust is more constrained than that of shipping lines.”
He explained that the above factors exacerbated congestion in key ports and shipping nodes, increased delays, reduced visibility of shipments, increased fees and surcharges, added blank sailings, increased overall shipping costs and amplified trade frictions, noting that a positive development is the high profitability for liner shipping operators.
Consumers’ concern
On what that means for the consumer, Nicol said the high freight rates directly impact the import price of goods, to the extent that costs are passed on to the consumer.
According to him, depending on the type and value of goods, the current level of freight cost is equivalent to values between 0.35 per cent of the retail value for high-value clothes and 63.55 per cent for low-value high-volume furniture.
On how long this would last, Hoffmann said, “There are several mediums and longer-term trends suggesting that freight rates will likely remain higher than the previous long-term average for several years. For more than a decade, liner shipping companies had confronted very low freight rates. To survive, unit costs needed to be reduced. And to reduce unit costs, carriers invested in ever-bigger (economies of scale) and newer (more fuel-efficient) ships.
“However, the older ships were not scrapped, and the over-capacity remained, keeping freight rates low. This situation has now changed to a market with no over-capacity, and although the current order book for new ships is growing again, it takes time to build these ships.”
Buttressing his report, he said smaller and more vulnerable economies already pay more for shipping, adding that UNCTAD has extensively assessed the determinants of international maritime transport costs.
Way out
On what can be done, Hoffmann suggested that carriers, ports and shippers were all taken by surprise by the pandemic.
According to him, shortage of empty containers since late 2020 is unprecedented, adding that no contingency plan was in place to pre-empt the lack of availability or to mitigate its negative impact.
Given current trends, several months will likely pass before this disruption can be absorbed across the maritime supply chain and before the system resumes smoother operations, he asserted.
He pointed out three key considerations for policy-makers to help reduce the likelihood of similar situations occurring in future.
The report recommended, “Trade facilitation and digitalisation for resilient supply chains. The pandemic has highlighted the importance of resilient supply chains. Customs officials, port workers and transport operators have recognised the need to reduce physical contact, while at the same time keeping ships moving, ports open and cross-border trade flowing.
“Some of the trade facilitation solutions proposed by UNCTAD facilitate trade and transport while protecting the population from the virus. Many of the measures depend on the digitalisation of trade procedures, including in maritime transport.”
It also looks at tracking and tracing. “The recent shortage in containers and maritime equipment took stakeholders by surprise. Monitoring of port calls and liner schedules, along with better tracing and port call optimisation, are among the issues covered by the growing field of maritime informatics.
“UNCTAD is monitoring developments through the Review of Maritime Transport series, dedicated publications and online statistics. Policy-makers need to promote transparency and encourage collaboration along the maritime supply chain, while ensuring that potential market power abuse is kept in check or prevented.”
Carriers, he said, earned high returns during the pandemic, with double-digit operating profits for some container carriers in 2020, while shippers have emphasised that they don’t have access to empty containers for exports and face blank sailings, as well as high freight rates, while competition authorities investigate potentially-abusive behaviours.
He noted that while there are several reasons to explain the shortage in containers and ship supply capacity, including the disruptive nature of the pandemic and associated restrictions, it is also important to ensure that national competition authorities can monitor freight rates and market behaviour, and advised that policy-makers should continue to strengthen national competition authorities in maritime transport and ensure they are prepared to provide the requisite regulatory oversight.
To further buttress his view from the perspective of shipping situation in Nigeria, it is expedient to recall that the Chairman, Association of Nigeria Licensed Customs Agents of Nigeria, Tincan Port Chapter, Muhammed Mojeed, recently lamented that the challenge of sending empty containers abroad has led to increase in freight costs, noting that container scarcity was one of the factors responsible for the drop in cargo importation into Nigeria.
“There are only very few cargoes that are coming into the country now. A shipment that you can previously achieve with $4,000 has risen to as high as $14,000,” he said.
Last line
It is critical to ensure strengthened and improved collaboration across the maritime supply chain, with all players working together to enhance efficiency, transparency and reliability, while maintaining a profitable operating environment for liner shipping companies, ports and inland transport providers, Hoffmann added.
