Why is container shipping so expensive?

why is container shipping so expensive

Over the last, nearly 20 months as the COVID-19 pandemic has ravaged supply chains and trade channels, container shipping rates have seen a dramatic surge globally. In fact, 2020 Q3 and 2021 Q1 experienced the fastest increases in shipping container prices ever recorded. So, why is container shipping so expensive right now? And, if and when can we expect things to return to normal in this industry? Let’s dive in.

Why has the cost of Shipping Containers gone up?

In short, the primary reason for this problem is the world’s ongoing adversary: COVID-19. The shipping prices reflect the effect that the pandemic has had on supply chains. Overall, container shipping prices have risen as a result of a classic case of ‘supply and demand’ from all directions.

Not only are there supply restrictions in China, but there is also a worldwide container shortage, and the Suez Canal Accident had a major impact on shipping prices as well. Aside from companies simply raising their prices to compensate for their increased expenses, there are a number of individual factors that have contributed to more expensive shipping costs. That said, let’s take a deeper look at the biggest reasons why container shipping is so expensive in 2022.

The Global Container Shortage

When essentially the entire world went into lockdown as a direct response to the pandemic, China was able to reopen its economy sooner than Europe and the United States. Though, the containers that China needed to ship their goods were still trapped in these two locations. This caused a shipping container shortage in China.

In January of 2021, Mark Yeager of Redwood Logistics was quoted saying: “There are about 180 million containers worldwide, but ‘they’re in the wrong place.” Also as a result of the pandemic, orders for new containers were cancelled in the first half of 2020. To catch up, Chinese shipping container manufacturers were only producing between two and three weeks’ worth of supply in the market. Because of this heightened demand for containers, every spot on an available container in China has a significant price surcharge.

To put things in perspective, a new container at the start of 2020 cost about $1,800 per CEU (cost equivalent unit, which describes the value of a container based on a multiple of a 20-foot dry cargo unit). In late 2020, however, a new container went for $2,500 per CEU and they now cost a whopping $3,500 per CEU.

Transportation Costs

Undeniably, the cost of shipping and handling doesn’t generally run cheap. When you consider the increased gas prices, pricey aeroplane fuel costs, and reduced cargo space, carriers have had to produce the same amount of work with fewer resources.

In today’s market, the cost to ship a container via road or rail is about $800 to $3,000 per unit. Whereas, the average cost to transport a shipping container overseas rose to a staggering $8,000 or more in 2021. This price is nearly four times the amount it was before the pandemic this trend is expected to continue into 2022.

Again, supply chain disruptions were the main reason for such a major increase in price. As the inventory of merchandise rapidly decreased in 2020 and much of 2021, the demand rose and supply dropped to record lows. To reasonably meet this demand, prices inevitably climbed.

The Suez Canal Accident

In March of 2021, a shipping vessel known as ‘Ever Given’ got trapped sideways in the Suez Canal, blocking the entire waterway for a whole week. With the already increased shipping prices, this incident caused them to go up even more.

Approximately 12% of all the world’s trade must travel through the Suez Canal. Because of the significant delays that resulted, the accident cost between $2.2 billion and $3.9 billion in international trade. While this incident is a thing of the past and the canal is no longer blocked, it still caused delays for ships that were heading to their destinations.

Port Congestion

Port congestion is another reason for container shipping being so expensive. This simply means that there are more cargo ships at importing docks than there is space or time to unload their containers. As a result, cargo ships have had to wait for dock space to free up. Whereas there is typically plenty of open docks, or there’s only one ship waiting at a time.

In 2021, ports saw as many as 33 to 38 cargo ships waiting for a free dock and, in some cases, they waited for days or weeks to offload. Last October, there were approximately 60 cargo ships waiting outside of the ports of Long Beach and Los Angeles, with an average wait time of 11 days.

To counteract this issue and reduce the time spent to unload, shipping carriers have been loading fewer containers on ships. While this is a solid solution, it means that carriers have to make several trips. This is a less efficient way to ship, resulting in increased transportation costs overall.

When will shipping containers' prices go down?

While it’s difficult to give a solid answer to this question, ING claims that container shipping rates will continue to reach new highs and could say above pre-pandemic levels long term. So, it’s possible that container shipping prices come down, but it’s highly unlikely that it will happen anytime soon. Here’s why:

• Global discrepancies in the production and demand of goods, such as countries locking down and opening back up at different rates, shortage of empty containers, and companies reducing capacity on major routes.
• Few alternatives to ocean freight, meaning it’s difficult to avoid surging prices since there is simply no other option. While there are other options for transporting higher-value products, including shipment via train or air, capacity is limited.
• Unbalanced recovery, as some countries are exporting more goods than pre-pandemic, while others are far behind.
• Blank sailings, or cancelled port calls, continue to cut between 5% and 10% of scheduled capacity. Cancellations have primarily been a response to delays.
• Port congestion is likely a contributing factor to bother delays and cancelled sailings.

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Why is 2022 shipping so expensive?

Straight out of the shoulder, the main reason is the ongoing adversary: COVID-19. However, there are other reasons too. Global container shortage, the Suez canal accident in march of 2021, and port congestion are some of the other reasons.

Will shipping containers come down in price?

It's quite difficult to give an exact answer to these questions. According to ING, the shipping rates will continue to reach new highs. However, the price will go back to normal but it is unlikely that it will be anytime soon.

Why have container prices gone up?

One of the main reasons is China reopened its economy more than any other country after the COVID-19 pandemic. While China needed the container to ship its goods, the containers were in the wrong place. So due to the high demand for containers in the Chinese market, the price skyrocketed.

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