Ocean freight rates began to soar last summer, and haven’t let up. That is partly because consumers, unable to spend money in restaurants, have splashed out on goods that move by sea. Retailers and manufacturers, meanwhile, have rushed to rebuild inventories.
The shortage of 40-foot steel shipping containers has snarled global supply chains for commodities, hiking prices for some raw materials. That is of interest to investors and economists, who have been on the watch for signs of inflation after governments and central banks flooded markets with cash to bolster the pandemic-hit global economy. So far, there hasn’t been a big increase in consumer prices.
Trading houses, though, are feeling the pinch. Firms such as U.K.-based metals merchant RJH Trading Ltd. are paying lofty rates to secure berths on vessels. They face delays before loading cargoes at ports in Asia, where the dearth of boxes is most acute.
Normally, it takes RJH between 30 and 40 days to get tin and antimony, a silvery metal used in the electronics industry, from Asia to Europe, said managing director Charles Swindon. In recent months, RJH has waited for several weeks to find containers at ports in China, lengthening the journey time to 70 days. Freight costs are three to four times higher, he said.
“The main reason why it’s feeding through to the metals price is [that] freight has to be paid for,” Mr. Swindon said. “There isn’t the ability to ship metals out of not just Asia, but from anywhere at the right place and the right time.”
As the container shipping industry continues to boom, companies are adopting new technologies to move cargo faster and shifting to crewless ships. But it’s not all been smooth sailing and the future will see fewer players stay above water.
Transportation costs are a key part of the calculus for commodity traders. They make their money from moving large volumes of material to take advantage of narrow differences in prices in different regions and at different times. The traders are looking to pass on elevated container costs to buyers, a sign of the inflationary pressures being spotted in some corners of the market.
The container shortage is another reason, along with the rebound in energy prices, why inflation is likely to accelerate in the coming months, said Neil Shearing, group chief economist at Capital Economics. Still, he expects the effect on consumer prices to be short lived. Demand for containers will drop if consumers revert to spending less on goods and more on services such as entertainment, Mr. Shearing added.
Difficulty sourcing containers has added impetus to commodity prices, which are already buoyant thanks to resurgent demand from sectors like the car industry. Copper prices have rallied 80% since their low last March and stand at almost nine-year highs. High container rates are prompting traders to charge more.
The dearth of shipping containers is most acute at ports in Asia.
PHOTO: CONGJUN XV/SIPA ASIA/ZUMA PRESS
“We are paying quite a bit more to secure regular container space,” said Mark Hansen, chief executive of Concord Resources Ltd, which transports half of the refined metals it moves by container ship. “Ultimately, it’s an inflationary cost. You’re going to pass it along.”
Not all commodities are transported in containers. Coal, iron ore and grains move between continents on vessels called bulkers. Materials like white sugar, coffee and aluminum are often shipped in boxes to prevent damage.
Despite a bumper sugar crop in India, the world’s second-biggest producer of the sweetener, traders have struggled to source containers to export it. The market has responded by pushing prices for refined sugar further above those for raw sugar, according to John Stansfield, a trader at Group Sopex.
“It’s just the logistics of getting it out [of India] into the world market,” Mr. Stansfield said.
Traders moving goods from East Asia to Europe are paying more than six times what they did last April. Rates between the two regions shot up to $8,455 per 40-foot container on Wednesday, according to an index compiled by Baltic Exchange and Freightos, an online freight marketplace. That is the highest level recorded since the index was launched in 2016.
At $4,709 per container, rates from Asia to the U.S. West Coast are almost four times higher than they were in March 2020. For taking goods to the East Coast, rates have more than doubled to $5,658 per container.
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Rampant demand isn’t the only reason for the container shortage. Health precautions and coronavirus cases among workers have slowed the flow of boxes through ports, reducing the pool of available containers. Dozens of cargo ships are queuing to discharge at the ports of Los Angeles and Long Beach.
London-based D.R. Wakefield began to experience severe problems moving coffee out of Vietnam—the world’s second-largest producer of the bean—in late January. Five of the shipping companies the trading house works with said they couldn't ship out of the southeast Asian country, said trader Guus Bremer.
Analysts said transportation costs are likely to remain elevated. “At each stage, everyone has thought this can’t keep up,” said Judah Levine, research lead at Freightos.
Write to Joe Wallace at Joe.Wallace@wsj.com
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