Sea freight: one route, two ways

Much has been written in recent months about the ins and outs of the current disruption of global freight. The result is an explosion in the cost of ocean freight, as illustrated by the Freightos Baltic Index (FBX), which measures the overall average price of 40-foot container transport on the world's major trade routes.

FBX Index as of 27 August (Source: Freightos Baltic Index)

The graph shows the surge in the price of sea freight at the global level, in particular on the flagship routes of South-East Asia / US West Coast and South-East Asia / US East Coast. So much for the aggregate data. But diving below the surface, another landscape emerges, much more nuanced and brilliantly explored by the Financial Times' Claire Jones, in a paper published on Alphaville. According to FBX, the average cost of a Pacific crossing between China and the US is currently $17,507, which is, of course, extremely high. But in reality right now, "it is possible to get a container across the Pacific for as little as $5,500 or as much as $20,000," writes Jones, who calls this reality "staggering."

Cracks that become chasms

Clearly, factors that would not normally matter much now do matter a lot more, and have led to a kind of pricing glut in an industry used to a certain uniformity of price. Work by Xeneta, another provider of ocean freight data, shows that the messes created by the pandemic have turned small pre-existing mismatches into chasms. For example, the carriers' big customers still had logically lower rates than the small ones. But only by a small amount, about 5%. "Today, it's more like a fifth," says Claire Jones. Same discrepancy with the destinations. Apparently, disembarking in Canada is much cheaper than in Los Angeles "where docking delays persist". And departing from China, which used to be slightly cheaper than Japan, is now 40% cheaper.

Basically, a small company that wants to ship a single container from Kobe to Los Angeles is likely to pay $20,000, while a multinational company that ships a lot of goods all year round can end up with a bill of $5,000 for a Shanghai/Seattle shipment.

From a stock market point of view, this state of affairs creates new questions. For example, some of the shipping industry's larger customers may not see as much inflation in transport costs as expected, while smaller companies may be hit much harder. The full FT article is available here, with a common sense conclusion.