5 Reasons Global Shipping Costs Will Continue To Rise

Shipping costs have risen sharply and fierce competition for ocean freight capacity is the new normal. With new capacity only slowly coming onstream, freight rates are expected to continue to reach new highs this year and will remain above their pre-pandemic levels in the longer term.

Shipping containers in New York

No short-term relief

Shipping costs have been growing strongly since the autumn of 2020, but the first months of this year have seen a new surge in prices across different freight rates (dry bulk, containers) along major trade routes. Prices for several trade lanes have tripled compared to last year, and charter prices for container vessels have seen similar rises.

There is little sign of relief in the short term, and rates are therefore likely to continue spiking in the second half of this year, as rising global demand will continue to be met with limited increases in shipping capacity and the disruptive effects of local lockdowns. Even when new capacity arrives, container liners may continue to be more active in managing it, keeping freight rates at a higher level than before the pandemic.

Here are five reasons why costs aren't going to come down anytime soon.

1. Continued global imbalances push prices up further

Problems that had built up from the beginning of the pandemic have included imbalances in the production and demand for goods, with countries locking down and opening up at different times, as well as shipping companies cutting the capacity on major routes and shortages of empty containers. As the recovery has progressed, global demand has recovered strongly, especially in the sectors which are most closely linked to international trade in goods. Competition for ocean freight capacity has intensified as economies open up further and inventories are rebuilt across the several links of supply chains.

Global shipping costs

Source: China Ministry of Transport, Harper Petersen & Co. and Baltic Exchange via Macrobond, ING
Year on year growth in freight rate indices, 2018 - May 2021

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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