- The China-US West Coast route soared by 29% to $1,668 per 40ft equivalent unit
- The rise is expected to cause operational issues, including delays to coffee shipments
- Experts believe the rise in freight rates will not last particularly long
FOR MANY in the coffee industry, recent inflationary pressure and rising energy costs have felt like a nightmare from which they will never wake up. It has reduced some roaster profit margins to a fraction of what they were before the pandemic and made staying competitive an increasingly complex – and exhausting – endeavour.
Unfortunately, recent news that the Shanghai Containerized Freight Index (SCFI) has just risen for the third week in a row is not the update that anyone in the coffee industry wanted to hear.
On April 14, the SCFI, a closely watched measure of container shipping spot rates, jumped by 8%, while the China-US West Coast route, which comprises 20% of the index weighting, soared by nearly a third to $1,668 per 40ft equivalent unit.
The reason for the increase is largely attributed to the mid-April general rate increase (GRI) and rate increases on trans-Pacific, Middle East, and Latin American routes.
Coffee importers and exporters tend to enter into long-term contracts with shipping companies to transport their products, which helps to alleviate some of the increases on the price of coffee in the short term.
However, according to Saif Khalaf, the CEO of BoxHaul, a container haulage marketplace, the increase in container spot rates can quickly lead to a whole host of operational issues, such as delays.
“Certain commodities will not be significantly impacted where the ocean freight rate is regulated by government bodies,” he says. “However, in most other cases, there could be operational issues.
“Generally, shipping lines can only maintain higher rates when they face space constraints. In such a case, commodity shipments that tend to be heavier and shipped in 20′ containers, will have a lower priority for loading onto the vessels by the shipping line. This would result in shipments that have a higher than 14 ton/TEU average weight, facing rollings and delays to their destination.
“Increased transit times would be a problem for perishable cargo, particularly if they are rolled in transhipment ports where humidity could cause damage to the cargo and result in more insurance claims.”
Will container shipping spot rates continue to rise?
The recent rises in container shipping spot rates follow nine months of continuous declines as the effects of Covid-19 eased. In November last year, the estimated cost of shipping a 40ft container from China to the US West Coast had plummeted by 84% since the start of April to $2,470, according to Freightos Baltic Index.
However, at the time, it was still 80% higher than in October 2019, before the onset of the pandemic. Around 8% of vessels experienced delays, compared to just 3% prior to Covid-19.
The conflict in Ukraine has certainly dented the recovery of global shipping lines. But Saif says the rises this time are unlikely to drag on as they did during the pandemic.
“Shipping lines are attempting to push freight rates up now to gain leverage during the long-term contract negotiations, which typically close by the end of April each year,” he explains. “Once those long-term contracts have been locked in, it’s likely there will be a drop in spot rates during the summer period.
“If retailers manage to clear the inventory they have been overstocked with since the end of Covid lockdowns in 2022, I would expect rates to pick up again from September 2023. I expect space constraints could be an issue during this time, as supply chains are shifting back to a just-in-time model combined with a rush of factory orders ahead of the Chinese Golden Week holidays in the first week of October.
“If the reason for the rate rise is a lack of space availability, the main challenge would be getting their cargo loaded and delivered on time. However, I doubt that space availability would be an issue in the next few months and expect the rise in freight rates not to last particularly long.”