In this week’s EconMinute, we’re talking about container shipping costs.
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The shock of the pandemic highlighted just how important maritime container trade is to the global economy. An estimated 60% of the world’s traded goods are transported by sea in large steel containers.
Global shipping costs surged during the pandemic—a consequence of reduced shipping capacity at a time when there was an unexpected surge in demand for consumer goods. As a result, the cost of goods, and the time it took to get them, rose rapidly.
According to the World Container Index—a resource that tracks container freight rates along major trade corridors—the cost of shipping a 40ft container along a transoceanic route increased nearly seven-fold in the 18 months following March 2020.
After remaining largely stable at around $1,400 (US) per container in the years preceding the pandemic, shipping rates underwent a meteoric rise and peaked at over $10,000 per container in September 2021.
Since then, rates have fallen almost as quickly as they rose. The latest data from the World Container Index shows that rates have dropped for the 38th consecutive week and are currently $2,600 per container. While this price is still 85% higher than pre-pandemic norms, it represents a 75% decline from last year’s peak, with further decreases expected to come.
Here’s why container shipping rates have come down:
- Retailers are dealing with excess inventory that was previously ordered to mitigate long lead times. With enough inventory on hand and improving lead times, retailers have a reduced need to order.
- At the same time, there is shrinking global demand for consumer goods amid fears of a recession and inflationary pressures.
- Falling demand, in concert with efforts by ports, has reduced port congestion levels, improving both costs and transit times.