Surcharge Madness: Impacts on the Global Economy
Along with the continuation of the astronomical ocean freight rates that has plagued the shipping industry, the third quarter of 2021 can also expect a continuation of the additional surcharges. Carriers are not always up front about these surcharges, but they apply to all cargo and can add significant cost to an already staggering freight bill. Continue reading as we discuss the reason behind the surcharges, discuss how much they can be and the effect they are having on the shipping industry.
Why the Rising Surcharges?
Carriers are placing “port congestion” or “peak season” surcharges on goods traveling from Asia to the US, Canada, and Europe primarily due to peak season operational challenges in the global supply chain. The last year of pandemic troubles, such as equipment and labor shortages, have also contributed to delays, backups, and low capacity.
Despite these issues, demand from China continues to grow and is exceeding shipping capacity. Backlogs of vessels, such as those in the South China port of Yantian, add to global trade congestion and delays. While the Yantian port is clearing up and is closer to returning to normal, it will not alleviate existing congestion issues in U.S. and other global ports.
How Much are the Surcharges?
Surcharges vary by carrier, shipping route, and type of cargo. For example, ZIM Integrated Shipping Services Ltd. recently announced a US Congestion Surcharge of $1,000 (USD) for 20’, 40’, 40’HQ, and 45’ containers going from the Far East to the east coast of the US, effective August 6th. However, the surcharge is $5,000 for the same container sizes heading to the West Coast. These prices are similar to those of Matson, which will be charging a “California Port Congestion Surcharge” ranging between $1,200 and $5,697 effective August 5th. Some carriers--including Cosco, ONE, and ZIM--are charging even higher rates, reaching over $7,000 for “value-added” products.
Economic and Logistics Consequences
Many carriers in several trade lanes are ignoring contracts and are pushing their exorbitant surcharges, leading to a lack of trust between parties as well as uncertainty about the future. Schedule reliability remains low as delays in ports have pushed blank sailing and skipped port calls.
As logistics companies scramble to adapt, many might find that China is no longer a viable option and thus turn to other areas around the globe. After all, regions such as South America and other parts of Asia are becoming competitively cheap for manufacturing goods abroad and shipping them to customers.
However, high surcharges over the long term might increase the possibility of businesses going under entirely. Some larger businesses may be able to absorb the high surcharges or adapt by changing their sourcing, but smaller companies may hit their limits quickly, forcing them to step out of the industry completely. Thus, whether through sourcing adaptation or fiscal demise, today’s shipping problems could push significant long-term changes in global trade.
In times like these, where the cost to ship cargo is higher than ever before, it makes sense to try to save money wherever you can. One way to possibly reduce costs is by utilizing the services of an experienced logistics company, such as ClearFreight. We work closely with carriers and airlines to get you the best possible rates. Contact a team member today to get a quote and to hear how our supply chain solutions can help you.