'Mergers big factor in exorbitant agricultural shipping costs'

2022 03 23

OCEAN carrier consolidation appears to be a major contributing factor for the substantial increase in shipping costs that began in the middle of 2020, according to RaboAgrifinance vice president research Roland Fumasi.

The initial impact of Covid had a compounding affect, also having a profoundly negative impact on the shipping industry, he told California's AgNet West.

But the economic recovery in the US, said Mr Fumasi, has increased demand for goods coming from Asia leading to record levels of cargo shipments.

"At that point the shipping companies had already gone through some major consolidation. So, a very small number of very large players that are essentially organised into three alliances," said Mr Fumasi.

"Because of all the years of lack of profitability of these players and the high concentration now in the industry - really an oligopolistic situation - they're not going to be really fast to give up the record profits that they're now making."

The supply and demand imbalance between the US and Asian markets has also been a substantial contributor to increased shipping costs. Freight rates for products coming out of Asia increased by as much as 900 per cent at their peak, because of exceptionally high US demand for goods.

While rates for cargo such as agricultural commodities leaving west coast ports increased by as much as 300 per cent, it was still more valuable to send back empty containers to be refilled in Asia, said Mr Fumasi.

Given the carrier consolidation, producers should not be expecting rates to come back down to 2019 levels.

"Are they going to stay at these peak levels? Absolutely not, things will get more balanced," said Mr Fumasi. "But, carriers are going to be a little slower to bring on supply and capacity and we can expect higher freight rates than we saw pre-Covid for the foreseeable future."

Source Shipping Gazette

Shipping Gazette


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