How is Covid in China affecting the cost of shipping?

More than two years into the Covid-19 pandemic, the cost of shipping still remains many times higher than pre-pandemic rates. Although there is hope the situation will stabilise soon, ongoing lockdowns in Shanghai could continue to push costs up, writes Gary Wilcox, CEO at JAG UFS

Surprisingly, when the pandemic first hit the UK in March 2020, shipping companies did not immediately follow the increase in airfreight charges with their own. Airfreight rates quadrupled nearly overnight, whereas initially, there was no significant movement in rates on ocean freight until some nine months later at the end of 2020.

When the price increase did come, it was explained by the shipping lines as an “imbalance of equipment.” At the time this made perfect sense, as the pandemic hit China’s major export markets — the USA, the UK and Europe — with countries in these regions seeing very strict lockdowns. In turn, this meant that when containers arrived at their destination they would be met with major delays due to shortages of drivers to remove goods from the ports, deliver to end users and ultimately, slow turnaround times in returning empty containers back to ports. With many importers having to work from home, there was a backlog at both manufacturing hubs and ports, and vessels were returning to China relatively empty and with very few exports. This is when the export price from China began to rise to accommodate the cost of vessels returning with empty containers. Since then, rates have remained at all-time highs. Industry insiders could see that increases were inevitable. However, the level of increase could be said to be slightly overinflated.

Importers and forwarders alike, however, could not have foreseen the rate levels that have been imposed by shipping lines. Within three months from November 2020 to January 2021, rates rose by 500%. Ocean rates peaked in December 2021 to a staggering 850% above pre-pandemic rates.

This has of course had an adverse impact on businesses, not only in the UK but in all of Europe and North America, leading to the unprecedented rises in inflation that we see being reported today.

And this situation could be exacerbated by the Covid-19 lockdowns that have hit Shanghai since late March. While the world’s busiest container port has remained open (thanks to a ‘closed loop’ management system that keeps workers isolated at the port site), an estimated 30% of the global backlog of container ships are thought to be sitting in traffic jams outside ports in China. There have also been problems getting cargo to and from the port due to the strict rules on truck drivers entering and exiting the city.

During this time, many companies have decided that shipping is just not a viable option anymore, certainly until rates return to a more feasible level. Rates may never return to pre-pandemic levels, but there is still hope that common sense will prevail and that shipping lines will continue with the downward trend and find a reasonable level, where shipping lines can make a profit, and at the same time allowing businesses to start shipping once again.

The UK has suffered a little more than most EU countries, with higher rates being imposed on the UK market. This is due to the big imbalance in imports and exports containers, forcing shipping companies to return to Asia with many empty containers on board.

The export market has also suffered, but not to the same degree as imports. Pre-pandemic, ocean export rates from the UK to China sat at anywhere between $500-600 (£389-467). This peaked during the pandemic and averaged at $1,850 (£1,441), although there has recently been a 20% decline in rates. The availability of equipment and space has eased and it seems that apart from the rate still being a lot higher than pre-pandemic, there does seem to be light at the end of the tunnel. In more positive news, there are signs of some sense of normality returning to the shipping industry and rate levels are on the decline in both the import and export market.