After two years of pandemic, ocean freights remain at record levels in Brazil. On the one hand, the industry believes that prices in the short-term market have peaked and are unlikely to rise further. On the other hand, the persistence of the pandemic still generates a lot of uncertainty and makes forecasts difficult.

In Brazil, the routes most affected by price increases are those of imports from Asia and of exports to the United States. In the last two months, the routes to Europe have also seen sharp growth. The impact, however, is widespread, since the crisis is the result of a global disruption in maritime trade.

Since 2020, cargo transport has been going through a “perfect storm”: staff cuts due to the virus infection; port closures or congestion; and delays in cargo release. All this in the midst of a skyrocketing demand for consumer goods – in many countries fueled by government stimulus. This mismatch has led to a generalized shortage of containers and ships, travel delays and unprecedented price rises.

On the China-Brazil import route, freight rates began to climb as early as the second half of 2020, but it was last year that they reached an all-time high, around $10,000 per TEU (20-foot equivalent units of containers). The price closed 2021 at an average of $9,700 per TEU – an increase of 62% compared to the previous year and 397% higher than in January 2020, according to a survey by the National Confederation of Industry (CNI).

In the case of export routes to the United States, price increases accelerated in the second half of 2021. The freight to the East Coast of North America ended last year at $9,300 per TEU, more than five times the price charged a year ago. In the route to the Gulf Coast of the United States, the price closed 2021 at $7,700, compared with $1,400 in December 2020, CNI said.

These values refer to the short-term market, and do not include prices of bilateral contracts (signed between shipping companies and customers). In this type of agreement, companies that need to transport their products get more stability and protection for moments of price swings. If the entire market is considered, prices drop substantially. For example, in the Asia-Brazil import route, the average freight was $5,794 per TEU in November 2021, according to Logcomex’s calculation.

Prices in the spot market seem to have already peaked “both in exports and imports,” said Luigi Ferrini, senior vice president in Brazil at Hapag-Lloyd, a shipping company. At this moment, groups that are renewing long-term contracts are the ones feeling prices growth. Renegotiations have included price increases seen in 2021.

Andrew Lorimer, executive director at the consulting firm Datamar, believes that there is still room for some price increases. “It could still get a little worse. The main drivers of the crisis today are Chinese supply and U.S. demand, where the problems are likely to persist. In China, we have seen halts because of the omicron variant. And in the U.S., there are still logistical bottlenecks, a huge congestion at the East Coast ports,” he said.

The industry is also already seeing an accommodation of prices, although at a level considered high, said Matheus de Castro, an infrastructure specialist at CNI. “It is challenging to bring a perspective of resumption of normality, due to the behavior of the pandemic. But we are starting to see stabilization, although at prices five, six times higher than before the pandemic.”

Lower consumer spending in Brazil, paradoxically, has contributed to stabilization by helping to balance the supply/demand ratio, said Rafael Dantas, commercial director at the logistics company Asia Shipping. “[Consumer spending] has already peaked. We believe that the volume will fall this year. This is already happening in practice. December was not as heated as 2020, demand is slowing down. So, for us, the situation is almost normal.”

He also highlights, however, the uncertainties brought by the new wave of the pandemic in the world – especially in China, where social distancing measures are more drastic.

Rafael Gehrke, with Logcomex, believes that it will be possible to have a clearer vision about the potential stabilization of prices as of the second quarter, when the effects of the Chinese New Year will be over, at the beginning of February – a holiday that has a great impact on the cargo movement, with an increase in trips before and after the date, when the activities in the country are halted.

“From the second quarter on, other factors may also be clearer, such as the reaction of the local demand in Brazil or a potential increase in interest rates in the U.S., which may slow consumer spending a little,” he said.

Analysts say that it is difficult to predict at which level the freights will stabilize once the scenario calms down. Mr. Castro, with CNI, says that it is difficult to imagine that prices will return to the level seen in the last decade. Mr. Ferrini, with Hapag Lloyd, says that prices are likely to stop at some point between the current level and those seen before the pandemic.

Despite the difficulty of projection, Mr. Lorimer, with Datamar, considers the current prices unsustainable. “A good part of last year’s inflation has to do with the cost of transportation, which impacts everyone. Many products, such as those of lower value, don’t even sustain themselves with such high freight.”

Source: Valor international

https://valorinternational.globo.com/