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Effects of Shipping Congestion on Latin America

Chile
Suez Canal Blockage
Price Trend
China
COVID-19
Logistics
Jul 22, 2021
Written by
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Juan Carlos
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A faster-than-expected rebound in demand for goods in the US is causing supply chain disruptions such as container shortage and severe delays in the main Latin American ports, mainly from shipments coming from and destined to the Asian markets. The effects of the container shortage seem to be more significant now in Latin America, as much of the cargo from Asia has been destined to the US. As a result, exporters in the region face severe delays in their shipments as well as substantial increases in freight costs, which are threatening global prices for the main agricultural export products. The effects of the container crisis are now more palpable in Latin America than ever before.

According to the Freightos Baltic Index (FBX) data, the Global Container Freight Index rose from USD 2,000 to USD 6,000 between June 2020 and June 2021 for China-US routes. The tripling of the cost reflects the total transport cost per container from China to the US West coast. Additionally, there are bottlenecks in shipping ports in China, where queues for ships to enter ports can take up to 13 days.

Imbalance in Container Availability from Asia

Over the high-demand season, which includes the months of July, August, and September, the global supply chain faces several challenges to fulfill cargo transport in different maritime routes. The imbalance in the availability of containers is mainly due to booming US demand after COVID-19 restrictions were lifted. The US jumped from importing USD 170 billion in June 2020 to importing USD 239 billion in June 2021, a 40% increase. This substantial increase in US imports is mainly of Chinese origin, leading to a boom in shipping, demand for containers, and port fees in the Asian and US routes.

Container shortages from Asia to Latin American routes have had the most significant impacts with negative effects. Still, there is also a delay of about six weeks in confirming bookings at shipping companies. The situation has deteriorated to the point where Hapag-Lloyd, the world’s fifth-largest container line, has stopped all bookings coming from Latin America, a region that accounted for almost a quarter of its volume in 2020. The company has claimed that the current operational constraints heavily affect their services, causing congestion in the main Latin American ports. The port of Manzanillo in Mexico has been one of the most affected ports, where more than 50% of the countries’ exports to Asia are shipped. In Peru, according to information published by the National Port Authority (APN), there has been a 10.9% decrease in cargo movement compared to 2019.

Unprecedented Cost Levels with Deteriorating Levels of Service

Shippers are facing unprecedented costs with deteriorating levels of service on a global basis. Shipping company CMA CGM has announced that surcharges for European and South American services due to port congestion and equipment shortages continue to rise. According to figures from the Economic Commission for Latin America and the Caribbean (ECLAC), the USD 4,000 fee that was normally paid to bring a container from Asia to Panama surged to USD 10,000 by the end of June. In recent days this fee has amounted to USD 15,000. ECLAC also mentioned that the effect of the elevated cost in Latin America has been more significant now because much of the container congestion today is from the Asian to the Latin American routes, while when the congestion occurred in the Suez Canal, the effects were less pronounced as that route is used more by European countries.

It is estimated that approximately 20 million containers circulate the world through different ports daily. However, in Latin America, it is estimated that regional shipping exports of goods fell by 13% and that of imports by 20%. In addition to a lack of containers, global logistics faces other challenges caused by COVID-19. As infections among workers in some ports in Asia, such as Yantian port in China last month, has led to the partial closure of operations, causing delays, congestion, and rising freight rates. Other main ports in Asia have established various sanitary measures to better maintain ships entries and arrivals. This has also caused shipping companies to cancel trips or crossings, adding to the congestion in the area.

Second Half of the Year Outlook

In the absence of additional shipping capacity to solve the issue, delays in supply will continue to pressure tariffs. In addition, importers and exporters continue to pay premiums, now essential to secure space on some routes. Corporate shippers with long-term maritime contracts who have signed last year´s rates won´t be able to move containers without paying premiums, which has Latin American exporters extremely worried as their shipping cost will be raised by at least 30%, which will need to be translated to the export price of goods.

It seems that elevated rates may extend into the second half of the year given that even with the congestion, bookings remain very strong as the Asian import market as well as the US market has started to feel the quick recovery on various essential agro commodities and the second half of the year won´t be an exemption of this trend.

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