Shipping Costs Skyrocket Due to Container Shortage

The Shanghai Containerized Freight Index (SCFI) reflects changes in Shanghai export container transport costs, serving as a key indicator of global shipping demand and costs. From 2019 to early 2020, shipping costs were stable and manageable. Then, from mid-2020 to 2021, costs sharply rose due to COVID-19 disruptions, increased demand, port congestion, and container shortages.

Following the pandemic hit, costs declined from 2022 to early 2023 as supply chains recovered from pandemic impacts. However, from 2023 to 2024, costs surged again due to ongoing container shortages and demand pressures. Lessons learnt from the pandemic show that there is an increase in demand, as shippers are importing more goods now, as they fear a squeeze in capacity during peak season (which usually happens in Q3), which in turn is leading to an upward pressure on rates in the spot market.

Disruptions in critical maritime routes might also have caused the recent escalation in shipping costs. The Bab el-Mandeb strait, a strategic chokepoint in the Red Sea, has witnessed intensified Houthi attacks on commercial vessels since mid-November, prompting major shipping companies to reroute ships around Africa's Cape of Good Hope. This alternative route adds approximately 4,000 miles to journeys, significantly increasing transport times and freight expenses. Furthermore, heightened risks in these high-risk areas have led to soaring insurance premiums for vessels, further burdening operational costs.

The volatile nature of shipping costs over the past few years shows that as the industry navigates these challenges, stakeholders must remain vigilant and proactive in addressing the complexities of global trade and logistics.