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How record-breaking freight rates and delays influence the packaging industry

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How record-breaking freight rates and delays influence the packaging industry

The years 2020 and 2021 will go down in history for reasons directly related to COVID-19 and its far reaching effects. The effects on the transport sector and international trade have been significant. The ocean freight market’s ‘perfect storm’ has worsened in the continuing aftermath of the Suez Canal blockage, driving up rates on the Asia-Europe trade lane to unsustainable levels [1]. Temporary lockdowns and ad hoc port closures keep hitting the industry and result in a vicious cycle of port congestion, vessel cancellations and container shortages, impacting overall supply chain efficiency. In the meantime, consumer-led growth economic growth spurts continue and the ocean freight market is creeping up to what would normally be peak season. Altogether, this is leading to continuously increasing costs and transit times. [1,2]

Container freight rates continue to break record after record: in one year’s time, prices in the Drewry World Container Index have shown an increase of 351% [3]. In some regions, the prices are at least six to seven times higher compared to their level last year. This is before adding the additional surcharges that are being applied these days.

Consequences for import shipments

All of this has a severe impact on the global supply chain. An impact that is also being felt by our Partners and in our own production chain. Shipments from Bangladesh, part of the heavily impacted China route, are often only accepted at extremely high rates. Meanwhile, rates for shipments from India are also rising sharply. Often, lower paying cargo does not get on board at all, or receives multiple roll-overs at transshipment ports.

Shipments from other regions in Asia also face delays because of recent terminal lockdowns due to COVID-19. This comes on top of the already existing back-log and a shortage of containers in these ports as a result of European port congestion, which also results in vessels omitting their calls to the port at the last minute.

Managing uncertainties

Altogether, these events result in delays, uncertainty and increasing freight rates with regard to shipments from Asia. Although these situations are unfortunately beyond our control, our dedicated Supply Chain department and our partners in logistics are working in close cooperation to mitigate any negative effects. Thanks to our centralised container planning and shipment information processes, we are able to maintain a clear overview of the situation. All local LC Packaging offices have access to this overview. We continue to stay in close contact with our customers to provide updates and to discuss the best solution for shipments on a case-by-case basis.

A volatile outlook for the months to come

Looking ahead, the supply-demand imbalance may continue for most of the remaining year. For ocean shipping, the global supply and demand graphic for 2021 reveals an imbalance in favour of demand of about 3-3.5% [4]. Rates are therefore likely to continue spiking in the second half of this year. Rising global demand will continue to be met with limited increases in shipping capacity and the disruptive effects local lockdowns causing port congestion and closures. Even when new capacity arrives (though that will not be before 2023 when new container vessels enter the market), container liners may continue to be more active in managing it, keeping freight rates at a higher level than before the pandemic. [5]

Amid all of this, LC Packaging, in close communication with our customers, is continuing to work on finding the best available solutions for our shipments. We continue to be our customer’s Committed, Reliable and Loyal partner in packaging – even when times get tough.