From bananas to brake fluid. Everything has become very expensive. The causes of this inflation are multiple, starting with the pandemic and continuing with the war in Ukraine, but if there is a sector that allows us to observe well how the economy is advancing, that is maritime transport. Nearly 90% of goods globally are shipped by ship.
From Shanghai to the port of Rotterdam, the pandemic cut off supplies because there were no workers to do their jobs. This led months later to a collapse in shipping the containers. Now that this situation is returning to normal, we are facing another: the gossip of the companies that have made gold during these months.
If there is no longer a collapse in ports, why don’t prices go down? Before the pandemic, the average cost of shipping a container from Asia to the United States was approximately $1,000. But with the collapse, this cost rose to almost $20,000. A madness that has already been left behind, but whose consequences are still noticeable. According to the Drewry World Container Index, the cost of container shipping this summer 2022 remains above $12,000.
In addition to collecting the price, the renowned index shows its conclusions and comments that the balance of supply and demand is not enough to explain the price. Instead, they explain that the policies adopted by shipping companies are more important.
The chaos has passed from the sea to the land. Additionally, they comment on the inefficiencies of the container network, that the bottlenecks have moved to the interior of the ports and that the rates with long contracts are very different from those charged now. Although we no longer see long queues of ships waiting to drop off containers, maritime transport is still in the grip of a major crisis.
Payments in advance, additional charges, unfair rates… An investigation by Pro Publica describes the case of the Long Beach port in California and shows the organizational chaos. Pay $12,000 up front to pick up a container; prices that change 50% from one day to the next or extra payments for leaving an empty container late. The latter is a logical process, if it were not because the logistics are going so badly that there is no space and they force these delays on purpose to charge more.
Responsible for up to 1.5 points in inflation. The importance of maritime transport is such that a very relevant part of current inflation would be directly related. According to a study by the International Monetary Fund in which data from 143 countries have been studied over the last 30 years, it has been found that maritime shipping costs are a very relevant factor in inflation, to the point that when rates are doubled , inflation increases by about 0.7 percentage points.
But these effects are persistent and are felt, according to the IMF, up to 18 months, with its maximum effect a year later. This implies that the high cost that we saw last year with the collapse of ships could have increased inflation by up to 1.5 percentage points in 2022.
Nine major shipping companies control all world trade. And they are lining up. There are only nine ocean carriers handling shipments from Asia to the United States. A tiny amount considering the huge amount of money that moves. However, the high costs to have a company of this type mean that there are not many more.
To the surprise of few, these nine shipping companies are the great beneficiaries of this entire logistics crisis. “The carriers are the winners and their significant increase in profits is being financed by higher prices for all products moved on container ships,” John McCown, a shipping expert, told Reuters.
The figures prove it: if last year during the first quarter they had profits worth 19,100 million dollars, during this first quarter of 2022 their profit has reached 59,300 million dollars.
Joe Biden tries to stop the tariff increase (with brutal profit margins). At the beginning of June, the president of the United States, Joe Biden, expressed a fact that reflects the situation well: “These nine companies have raised their rates by more than 1,000%”. During the last decade they have been strengthening their control of the market and already control more than 80% of world transport, with more than 95% of what passes through the most relevant maritime lines between Asia and North America.
The United States has activated a law to try to regulate these rates, although the measures are unlikely to have an immediate effect. The objective is to curb the enormous profits of these shipping companies, where profit margins reached 56% in 2021, when before the pandemic they were an average of 3.7%. A brutal difference.
Despite everything, officially there is no oligopoly. These high figures can suggest that there is a hidden oligopoly, where companies support each other so that nothing changes, they benefit and it is the consumers who see the price increase. However, the Federal Maritime Commission and the Department of Justice conducted an investigation and concluded that “competition was vigorous.” That is, it has not been officially considered that they are doing anything illegal.
goes for long. “The still very high sea tariffs will be felt in prices well into 2023,” explains Jan Hoffmann, head of logistics at the United Nations Conference on Trade and Development (UNCTAD). Peter Sundara, head of maritime logistics at Visy Industries, is of the same opinion: “We believe that the current congestion, not only in ports but also in land infrastructure, will be present at least until the first quarter of 2023.”
These maritime tariffs are affecting many companies, where each time it is an issue that is on the discussion table. Despite the fact that there are fewer and fewer restrictions due to the pandemic, the situation is far from being fixed in the short term. Several reasons come together. On the one hand, not all countries are coming out of the pandemic at the same time. On the other, that the maritime transport situation was already weak before the pandemic.
The obsession with ever larger cargo ships has its consequences and this joins the decarbonization trend. That is, make ships more efficient. Which is often synonymous with just slower boats, which is also a problem. A sector, maritime transport, which affects the entire world economy and which continues to be involved in its own internal crisis.
Image | chuttersnap
George is Digismak’s reported cum editor with 13 years of experience in Journalism