Shadow Inflation: Shipping Costs Are Up Way More Than You Think

Name something that costs far more than it did before the pandemic that simultaneously gives you far less value for your money than it used to.

Of all the goods and services in the world, it’s hard to find a better pick than ocean container shipping. As rates have skyrocketed, delivery reliability has collapsed amid historic port congestion. Ocean cargo shippers are paying more than they ever have before for the worst service they’ve ever experienced.

The true COVID-era inflation rate for ocean shipping, when adjusted upward to account for lower quality, is much higher than the rise in freight rates.

Rates spike, quality plummets

For businesses that rely on imports and exports, ocean shipping is a necessity, not a luxury, so pricing rises if demand exceeds supply regardless of how bad the service is. U.K.-based consultancy Drewry recently upped its forecast and now predicts that global container rates will increase by an average 126% this year versus 2020, including both spot and contract rates across all trade lanes.

Norway-based data provider Xeneta sees most long-term contract rates in the Asia-West Coast route averaging $4,000-$5,000 per forty-foot equivalent unit, double rates of $2,000-$2,500 per FEU at this time last year. Spot rates have risen much more than that, both in dollar and percentage terms. The Freightos Baltic Daily Index currently assesses the Asia-West Coast spot rate (including premium charges) at $17,377 per FEU, 4.5 times the spot rate a year ago.

Service metrics have sunk as rates have risen. Denmark-based consultancy Sea-Intelligence reported that global carrier schedule reliability fell to 33.6% in August, an all-time low. In August 2019, pre-COVID, reliability was more than double that. Sea-Intelligence calculated that the global delays for late vessels was 7.57 days, almost double the number of days late in August 2019.- READ MORE