The United Nations Conference on Trade and Development (UNCTAD), in a new policy brief has examined the complexities surrounding the rise in recent freight rates and the risks to a robust trade recovery.
After experiencing a surge in freight charges as a result of the covid-19 pandemic, following lockdowns and mobility restrictions, freight charges skyrocketed again moments when prices had begun falling. This was due to the block in traffic by the EverGiven megaship in the Suez Canal, for almost a week.
The surge in freight charges spiralled across developing regions in Africa and Latin America. Indicatively, it outpaced the surge in rates of regions where it plied the East-West route. As it occurred, freight rates for early-2021 recorded an all-time peak on all shipping destinations.
Thus, the lowest relative increase in freight rates was recorded on Asia-East Coast North America route. Thus, increasing by as high as 63%, while freight rates from China to SouthAmerica increased by 443%, UNCTAD data reveals.
The policy brief spells out a number of actions that global economies must work to avoid these in the future. The policy brief highlights three issues that need attention; advancing trade facilitation reforms, improving maritime trade tracking and forecasting, and strengthening national competition authorities.
Policy Recommendations
Among the policy, it calls for the implementation of reforms to make trade easier and less costly. Reflecting on the pandemic effect which also saw a spike in container rates, the policy brief indicates that modernizing trade procedures will reduce physical contact.
Also, policy makers must promote transparency and collaboration along the maritime supply chain. This is to improve monitoring of port calls and liner schedules.
Furthermore, the brief noted that governments must ensure competition authorities have the resources and expertise needed to investigate potentially abusive practices in the shipping industry.
Obviously, the current challenges with container shortages emanate from the disruptive nature of the pandemic. That notwithstanding, the challenges have also escalated due to certain strategies by carriers at the beginning of the pandemic.
Against this backdrop, it is clearly evident that freight rates are a major component of trade costs. So, the increase in freight rates pose risks to the global economy as it struggles to recover.
Jan Hoffmann, Head of UNCTAD’s trade and logistics branch commented that, “the Ever Given incident reminded the world just how much we rely on shipping,” and added that “about 80% of the goods we consume are carried by ships, but we easily forget this.”
Furthermore, freight charges impact global trade, particularly, consumer goods including clothes, medicines and processed food products while shipping them in containers. Thus, as the rates on containers jump up, businesses are likely to pass on the burden on consumers.
“The ripples will hit most consumers,” Mr. Hoffmann said. “Many businesses won’t be able to bear the brunt of the higher rates and will pass them on to their customers.”
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