Boris causes uproar every time he increases London travel costs by a few pence but imagine if one day a ticket was £2 and the next day the same journey cost £5. That’s par for the course for importers bringing goods into the UK by sea.
Instability Makes Importers Sea Sick
Statistics compiled by Shippo show that the Sea Freight for a container shipped from China to the UK on the 31st October 2013 cost US$650. That same container shipped one day later cost more than $1600. Not everyone buying goods from China can just absorb or pass on a 150% increase like that overnight.
In contrast, the alternative methods of importing goods to the UK, Air Freight and couriers increase their rates naturally when demand outstrips supply. The below graphic shows just how much Sea Freight rates deviate from the 2013 average compared to air freight rates which just increase for the Christmas period:
Sea Freight rates are increased by the shipping lines through massive rate increases which rarely stick for longer than a week or two. The 1st of November 2013 saw shipping lines increase their prices by $975 per twenty foot container and Shippo’s figures show that the average Sea Freight rate in July was more than double that for June.
Over the past year shipping lines have been building and launching some huge container ships which could fly in the face of a basic economic principle. An important concept in determining prices for any product or service is supply and demand which concludes that when supply outstrips demand the rates should drop and vice versa.
Chris Veale from Shippo thinks that this new capacity could be destabilising the rates in the Sea Freight market noting that “supply outstrips demand for the vast majority of the year so to prevent prices going through the floor the shipping lines have to artificially inflate the rates”.
European Commission Investigates
Fourteen of the top twenty Shipping lines are to be investigated by the European Commission on grounds that they may have been artificially increasing sea freight rates. It seems that the time is now for the lines to plan for the future, identify how they can achieve a good rate for their services using fair, legal and sustainable economic principles.
Importers of goods from Asia to the UK are crying out for a stable market so they can build their businesses without having to worry about constantly fluctuating shipping costs cutting into their margins.