A cargo traffic jam on the world’s roads, seas and air corridors could easily continue into next year, continuing to increase shipping costs, according to the head of one of the biggest U.S. freight brokers.
“The domestic freight markets are extremely dislocated and the global air-freight and ocean markets have tremendous amounts of constraints around them,” said Bob Biesterfeld, chief executive officer of C.H. Robinson Worldwide Inc.
“We could be standing up a pretty strong freight market throughout 2021, if not into 2022.”
That promises a windfall for truckers, air-freight companies and maritime shipping lines. Retailers, manufacturers and anyone else who pays to get goods across the globe will get pinched.
As a broker, contracting with carriers on behalf of shipping customers, C.H. Robinson can get squeezed when long-term contracts don’t keep pace with spot costs but adjust as new contracts are negotiated.
The Eden Prairie, Minnesota-based company projects an adjusted operating margin of 40% for its North America Surface Transportation unit this year, improved from about 33% last year.
Annual contracts for long-haul trucking will probably rise in the low-double-digit percentages this year, driven by spot rates that have jumped 35% from a year ago, Biesterfeld said in an interview. Air-freight prices have almost doubled from a year ago.
Maritime rates have surged the most. The cost of shipping a 40-foot container from Hong Kong to Los Angeles has nearly quadrupled in the last year, said Bloomberg Intelligence analyst Lee Klaskow, based on data from research firm Drewry.
The crunch developed as people who were barred by the Covid-19 pandemic from going to movies, concerts and restaurants spent their money on flour and treadmills instead.
The effect was magnified in countries where citizens received government relief. Shortages of trucks and drivers, in some cases because of enhanced unemployment benefits, contributed to supply-chain bottlenecks. So, too, has the reduction in airline flights, which typical carry some freight.
And the seaborne freight industry is tapped out. The Port of Los Angeles, the busiest in the U.S., is operating above what is considered full capacity in a normal market, JPMorgan Chase & Co. analyst Brian Ossenbeck said in a note Monday.
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“There’s no fast way to recover there,” Biesterfeld said.
“There are no extra ships sitting around waiting to be deployed.”
Customers that normally could book a container days before shipping now have to act weeks in advance. Some companies in desperation are turning to more-expensive air freight.
“We’re running weekly charters today from the EU to the U.S. and from Shanghai to the U.S., just to keep up with the incremental demand coming from our customers,” he said. “The demand is pent up and it continues to remain strong.”