Why shipping is so expensive this year, and why it won’t go down.

As Covid eases worldwide, the disruption to supply lines caused by this epidemic is expected to go down, yet shipping costs remain high.

A major problem for the globalized world

It may not be evident on the surface, but even the most simple of goods may have supply line based in different countries.

This may seen a bit counter intuitive as transporting various goods across the world costs a lot of money and time but the truth is transporting cargo over the seas is the most efficient way of transporting goods in massive quantities. Add to the fact the standard containers that goods are shipped in that makes shipping any sort of good very easy.

All this assumes that any goods that are shipped arrive in a consistent manner to keep this well oiled machinery of globalization going, as any delay means a domino effect that will have an effect on every succeeding point in the supply chain.

2020 : Attack of the COVID

Unfortunately, this is exactly what happened in 2020. As different countries shifted in and out of lockdown, supply chains were all over the place. The most prominent example of this phenomenon may be semiconductors, where we saw a major shortage in chips coinciding with the surge of cryptocurrencies.

All this caused utter chaos in shipping as firms initially reduced sailing ships to meet demand then, as some factories opened, others remained closed which lead to many already shipped containers being cancelled, hogging up the supply.

This imbalance also caused multiple countries to ship out empty containers as their factories were locked down. The most prominent example being China and US. As factories in US were closed, exports from China reached America but there were too few goods to ship back. This locked up the container supply as fewer containers were available.

This uneven recovery led to shipping prices being double to even quadrupled over some routes due to the shortage. Many factories were starved of inputs while many finished goods remained ready to be shipped but being unable to due to the shortage, or being deemed uneconomical.

All of this also caused many ports to become congested, further worsening the problem.

No Simple Solution?

The answer many be apparent to you, simply increase shipping containers!

As simple this answer maybe the truth is that making of new containers was halted during early days of the pandemic as people expected the worst. But, the quick recovery in some parts of the was unanticipated, so the supply of new container will be slow to catch up.

This year also lead in a record 229 container vessels being ordered which will take till 2023 to build. This will lead to a 6% increase in shipping capacity, even accounting for scrapping of old ships. But it is clearly evident that as of now, there will be no ease in the prices.

A 17 Year old with a keen interest in Economics, finance and cryptocurrency.