The cost of ocean freight has risen significantly in recent months due to a combination of factors that have disrupted global supply chains and increased demand for shipping services. Here are some key reasons why ocean freight is currently so expensive:
- Rebel Houthis: Rebel Houthis from Yemen are still sending drones to attack commercial vessels heading to the Suez canal. This continues to force container ships to sail around the Cape of Good Hope and add 7-14 days to transit times. This also absorbs some of the additional capacity (ships) injections that were planned to assist in global trade. It also leads to inconsistent flow of equipment returning to Asia ports creating container shortages.
- Regulatory Changes: The Biden administration announced a new round of tariffs on products such as EV, Aluminum, Steel, Solar, and some semi-conductor products. While the details are still not clear, this is/could lead to further increase in volumes moving earlier than planned ship dates to beat the tariff rates.
- Port Congestion: Major ports around the world have experienced significant congestion, leading to delays and longer turnaround times for ships. This congestion is often caused by labor shortages, increased cargo volumes, and inefficient port operations. The backlog at ports means that containers are not moving as quickly, which reduces the availability of containers for new shipments.
- Container Shortages: There has been a shortage of shipping containers, particularly in key export regions like Asia. The imbalance in global trade flows has led to containers being stuck in certain locations, unable to return to where they are needed. This shortage drives up the cost of containers and subsequently the cost of shipping.
- Increased Demand for Goods: As economies have recovered from the initial impact of the pandemic, there has been a surge in consumer demand, particularly for goods such as electronics, furniture, and other household items. This increased demand has put additional pressure on shipping services, leading to higher freight rates.
In summary, the high cost of ocean freight is due to a combination of increased demand, supply chain disruptions, port congestion, container shortages, regulatory changes, and other factors. These challenges have created a perfect storm, driving up shipping costs and impacting global trade.
