Soaring freight prices

Khaled El-Ghamry, Tuesday 2 Nov 2021

Sea freight prices have been reaching new highs, leading to shortages or increased prices of commodities, reports Khaled El-Ghamry

Soaring freight prices
Soaring freight prices

Increases in international freight prices over the last year are being reflected in the cost of imported goods and thus on their availability, leading to a hike in prices that analysts put in the neighbourhood of some 30 per cent.

The crisis is one of the repercussions of the Covid-19 pandemic, with Karim Ghoneim, board member of the Cairo Chamber of Commerce and head of its Digital Economy and Technology Department, saying it began with protective measures against the coronavirus as a result of shortages of cargo ships and of the workforce responsible for loading and unloading containers.

“This led to a delay in ships leaving the ports and extra expenses for ships and renting storage areas,” he said.

Karim Damak, chartering manager at the Taparura Shipping Company in Tunisia, agreed, saying that the Covid-19 pandemic had led to increases in freight costs by some 200 per cent since November 2020.

“With the Covid-19 outbreak and the closure of borders, air and land freight ground to a halt, rendering sea shipping the only means to move goods, even between neighbouring countries, such as Egypt and Libya, Tunisia, and Algeria,” he explained.

The increased demand for shipping was met by a decrease in the number of available ships as a rise in iron prices prompted the owners of older ships to sell them as scrap and buy newer and smaller ships, Damak said.

  With the rising demand and a shortage of cargo ships, the price of sea freight increased, recording a 100 per cent rise in freight costs in vessels transporting solid bulk cargos, such as iron and wood.

Shipping costs for container ships, especially those coming from China and neighbouring countries, have increased 10-fold. Containers that were once transported for $2,000 are now costing $20,000 because of long waiting lists and a lack of containers in Chinese ports.

Other reasons for the price rises are increases in the fuel prices for ships, in addition to a lack of ships in the Mediterranean and Red seas at a time when traffic is returning to its usual rate with an increase in transport orders.

There is also a local contributor to the increases in commodity prices, according to Ghoneim. Egypt’s Advance Cargo Information (ACI) system, which registers importers with the Customs Authority electronically, is adding to importers’ woes.

The system is meant to ease procedures for importers. However, it is still in an early phase, and a lack of clarity between government bodies and importers and difficulties in registering electronically have been increasing the time before shipments are cleared.

The end result is that cargos are being left in the ports for longer periods, increasing the final cost of goods, Ghoneim added.

Internal transport prices have also risen due to an increase in the number of toll stations on the roads and fuel price hikes. Importers have resorted to decreasing the amounts of goods shipped, leading to shortages in the market coupled with increased demand, Ghoneim said.

The crisis has led to a hike in the prices of commodities, including seeds, fertilisers, iron, and wood to levels that have not been seen since 2008 when the world financial crisis pushed the cost of goods up by 20 to 30 per cent over two years.

Damak said that Egyptian freight companies and their customers have been bearing the repercussions of the price rises, and the size of the problem has been proportional with the size of the companies concerned.

Large companies with significant liquidity have transported the goods of customers and allowed them to pay later, increasing the base of their operations, but smaller ones lacking liquidity and not being able to keep up with rising prices have seen their customers turn their backs on them.

With life coming back to normal after the pandemic, some freight companies have taken advantage of the increased demand for containers and vessels and delayed sending their container ships to ports to compensate for losses.

Instead of sending them once a week, they have been sending them once or twice a month to further raise demand, said Hind Sobhi, head of logistics at the Al-Araby Group.

This has reflected negatively on the imports of raw materials and consequently on industries, production lines, and the prices of goods, she said.

She believes that the crisis will last well into 2023 based on statements by international freight companies. She said freight prices will likely soar next year after contracts signed with shipping lines expire and new agreements at higher prices are signed.

To get around such problems, Egyptian manufacturers should depend on local raw materials and resort to sea freight only when absolutely necessary, Damak said.

*A version of this article appears in print in the 4 November, 2021 edition of Al-Ahram Weekly


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