Global freight dynamics and costs having a big impact

Last updated: 27 April 2021

By IndustryEdge

Originally published as part of the November 2020 Recovered resources market bulletin

One feature of the global pandemic has been the asymmetry in global markets. That is, instead of demand and supply crashing simultaneously in every country, national and regional markets have been disrupted in different ways, and at different times.

A generic example is that when one country’s demand is suppressed during a lockdown, another country’s industrial supply is operating at full tilt, but is unable to ship to the locked down country. Almost inevitably, the impact on shipping and freight has been significant, globally and therefore in Australia as well.

The costs of shipping and freight have increased dramatically in recent months. The whole world has been impacted, but some regions more than others. Examination of the China Containerized Freight Index (CCFI) produced by the Shanghai Shipping Exchange, shows that nowhere have cost increases been larger than for the Australia/New Zealand route, especially over the last 2–3 months.

Chart-China Containerized Freight Index (Mar 16 – Sep 20

Source: Shanghai Shipping Exchange and IndustryEdge.

Note: TEU – Twenty-foot equivalent unit.

The relatively small number of sailings from China to Australasia is one reason for the cost increases associated with local shipping, with demand increasing relative to supply.

A second and somewhat related reason for cost increases is the major shipping lines adding a levy for shipment into the Port of Sydney. Its congestion has reached the point where empty shipping containers are stuck in container parks, vessels cannot depart fully loaded with empties, and delays at port are costing exporters – of all goods – significantly increased fees.

Some importers and exporters have reported their total costs have increased as much as AUD400 /TEU (twenty-foot equivalent unit). That equates to between AUD17–23 /t additional cost, depending on the material being shipped. This is around a 15–20% increase in the overall freight cost.

The situation is impacting Victoria, with material being diverted away from Sydney, into Melbourne. This has resulted in containers being located in the wrong places, adding to costs and in some cases, leaving shippers without access to a one of the essential tools of trade.

Container shortages are impacting the entire world. Demand for Chinese exports have increased rapidly, but Chinese shippers are reporting they don’t have containers enough to meet demand. They are not all backed up in Sydney, but they are backed up around the world.

Shipping balances are very important to the global trade. A vessel cannot typically leave Australia full of only empty containers or only full containers. Normally, that has not been a challenge, because Australia exports less than it imports. But with port congestion, Australia is now playing its part in maintaining the imbalances around the globe.

In markets like those for recycled materials that rely on empty shipping containers and vessels that are in the right locations, for the right periods of time, market asymmetry is having a serious impact on already stressed sector economics.