By Tina Wu

Around 70 percent of global cargo is transported by container shipping. As an economical and efficient way of product distribution, suppliers had been enjoying the magic of long-haul shipping. They can easily build up their international trading network while successfully competing with local manufacturers in regional markets—all because of competitive pricing. Now the magic charm is taken away. Shipping costs are still soaring, when the price level is already five times higher than the pre-pandemic market. The freight rate from Shanghai to Los Angeles had been around USD 2000 per feu, but that figure now jumps to USD 10000 per feu, according Drewry World Container Index.

Supply shortage is an obvious cause for this price surge, but it only explains the iceberg on the surface. Congestion, insufficiency of equipment and labor have been discussed for months, with every member of the supply chain in shipping industry working together to increase available capacity. Carriers like Maersk, HMM and Cosco are ordering more containers and cargo ships while utilizing all resources that are at hand. As of June 2021, Maersk’s fleet of vessels can handle a capacity of more than 4.2 million teus, namely by a 100,000-teu increase compared with 2019. Container manufacturers are also accelerating the equipment production. The total throughput from Chinese suppliers now reaches 500,000 teus per month, an increase of 100,000 teus compared with last month.

Every supplier in the shipping industry is doing their job, and frankly speaking, they did it quite well. The U.S. busiest cargo port LAX demonstrated record-breaking monthly capacity eight times in the past year, with its annual capacity expected to surpass the pre-pandemic level and reach 10.5 million teus in 2021. Despite all efforts, shipping capacity are still in extreme tight supply at skyrocketing prices. So what is the iceberg under the sea?

In the past few months, we’ve seen leading shipping liners attracting more capital to invest in their business expansion plans. Meanwhile, their return arrives at near sight, with strong shipping demand lasting at least until next year, at a gainfully profitable price level. Ocean freight from Chinese main ports to the U.S. west coast, for example, has risen to USD 25000/ FEU. On the contrary, shippers are confronted with potential deficits when the shipping costs now value more than their cargo. A forty-foot equivalent unit container usually store cargo of USD 20000/ FEU. For relatively low-value products and SMBs (small and medium businesses), freight spike is killing their businesses.

As an experienced member of global freight forwarding, we also encountered operational challenges from making bookings to ensuring stable cash flow when our partners and clients also found it difficult to keep businesses running. Those outrageous freight rates already started the worst crisis in shipping industry as price surge itself is disturbing the supply chain. This also bring about inflation issues in the North American and European markets. Though there ain’t no such thing as “free shipping,” the unprecedented speed of price increase in shipping industry is of questionable business decisions, especially when all carriers have been reported with record-high revenues in the past year.

No one wants to pay for the increasing costs in this unprecedented state of chaos in global supply chain. Neither the carriers, nor the shippers—and certainly not the customers. Then here come the questions about who will contribute to the recovery of the market equilibrium, and each at what cost.