Why are the sea freight skyrocketing?

2021: a year for milking the freight rate.

2021 the year of the skyrocketing sea freight rates.

By FREIGHTERPEDIA

During the 2021 proved to be a very challenging year for shippers, but an exceptionally profitable one for ocean carriers and containership owners.

Soaring freight rates – both short-term and contract – along with a dysfunctional and, at times, broken supply chain heaped more misery onto the shipper community over the past year.

After the Chinese New Year in mid-February has ended, there was a brief glimmer of hope that rates had peaked and carriers were beginning to regain some semblance of schedule reliability but then along came the hapless Ever Given, attempting a three-point turn in the Suez Canal and blocking the waterway for a week in March.

Already on the ropes from taking hit after hit from carrier rate increases and de rigueur premium fees (essential to secure equipment and prevent containers being rolled) shippers were dealt a blow below the belt with extortionate demurrage and detention (D&D) charges.

Carriers continued to issuing D&D invoices to shippers often unable to pick up containers from chronically congested terminals, or return the boxes when empty.

And, notwithstanding that a significant part of the D&D charges is pure profit, the shipping lines were not under any commercial pressure to negotiate reductions and all protests fell on stony ground, with regulatory warnings largely brushed aside.

Carriers didn’t really need the money – their record quarterly profits even exceeded their best-ever annual returns, with the cumulative 2021 result for the industry now expected to exceed $150bn.

With only around a third of their earnings spent on ordering new ships, the carriers still had plenty of money to burn, so raids on the logistics sector, crossing over into the air freight space, and terminal acquisitions – and, in fact, anything that popped up on the M&A radar screen was fair game.

As a consequence of the much higher freight rates, for the first time in many years the economic barrier for new entrants to trades came down, with several new services springing up from old-fashioned liner operator disrupters that still understood the value of looking after their shippers as customers.

Unfortunately, the outlook for shippers in 2022 is more of the same, at least until the second half of the year, carriers it looks like they will still be milking the highly elevated freight rate cash cow for some time to come.

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