What is the issue with freight costs and delays?

Currently Shanghai China is entering it’s 5th week of lockdowns due it’s  ZERO-Covid policy leading to a massive shortage of workers. And if you consider that Shanghai is the busiest and largest port in the world, the result is massive backlogs in getting exports out to the world. But it’s not only Shanghai, it’s all over China which holds 5 out of the top 6 largest and busiest ports in the world – some of which are only operating at 50% capacity.

The Port of Shanghai is approximately 60km’s wide which is the equivalent of about 3600 sq km’s. Currently there are about 1000 ships all sitting off the coast of Shanghai waiting to either pickup or drop off. To put this in perspective there are usually around 4000 container ships queuing up all over the world – and currently a quarter of them are all sitting off the one port. Add to this, again due to Covid restrictions within China, they don’t have the available trucks /drivers to take away what’s going into China – which means the containers aren’t being emptied, which means they’re not empty to refill and go out as exports. More backlog.

Image of ships off the coast of Shanghai

So how does this affect freight costs and prices in general?
Underlying demand across the globe for goods has meant that any space on any ship now is going for a premium – hence the increase in costs.  Currently predictions are that Shanghai will re-open mid-May, however the rebound will likely further increase congestion, delays and higher ocean rates. This also puts pressure on alternative means of freighting goods such as air cargo, but ripples from the war in the Ukraine and ongoing Covid outbreaks continue to disrupt and put price pressure on this means too. To add to these cost pressures there are climbing oil prices coming as a direct result of sanctions against Russia who is the third largest oil producer in the world which are being passed down the line.

If you consider that a quarter of the worlds queuing ships are all off Shanghai at the moment – then you must also realise that those ships aren’t where they might otherwise have been. This means not only are you having trouble getting goods out of China, the ships that may have been getting items from Taiwan, US or other parts of the world – are mostly stuck off the coast of Shanghai. Also, to avoid the delays and congestion many shipping companies are just skipping some ports altogether and not picking up goods that were due to leave those ports. As a result of this huge traffic jam we should all be expecting delays ranging from weeks to months, but for certain items like cars or electronics you could be waiting as long as 12 months. Experts predict that the current backlog (and potential future lockdowns), will probably be affecting us all throughout the whole of 2022 and possibly into 2023.

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