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Home Business Effects of covid-19 make freight costs to China soar - Economy

Effects of covid-19 make freight costs to China soar – Economy

RIO – The disorganization of the world economy caused by the covid-19 caused the cost of sea freight to explode in trade with China. The average price to bring a container of Shanghai to the east coast of South America, whose main port is Santos, reached the third week of this year four and a half times higher than in early 2020 and 18 times more expensive than in the middle of last year, when the pandemic almost paralyzed maritime transport. This should cause readjustments in the price of products, say industry sectors.

Profit margins are tight, with no room for further cost increases. Last year, the Industrial Cost Indicator, from National Confederation of Industry (CNI), pointed to an increase of 8.6% in the third quarter compared to the second, the entity said last Friday. Raw materials, imported and domestic, were cited as villains.

The increase in freight prices is global, showing a historical series of the Shanghai Containerized Freight Index (SCFI), obtained by Estadão. Calculated by the Shanghai Shipping Exchange, a Chinese government agency, the index is a benchmark in the maritime transport sector. In addition to the stretch between China and South America, SCFI points to strong increases, since mid-2020, in transport from China to Europe, Africa and the United States.

According to Claudio Loureiro de Souza, executive director of Centronave, an entity that brings together the main international shipowners – as the maritime logistics companies operating in Brazil are called -, freight inflation occurs in a “perfect storm” scenario.

The pandemic has imbalanced international trade flows. The restrictions on trade and transport and the drop in demand paralyzed ships worldwide in the first half. In the second, the demand for goods returned more quickly than expected, leading to a rush for transport services, which caused a lack of containers and ships.

Price fluctuation

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As a result, the price of freight between China and Brazil, which was US $ 1,989 per TEU (standard capacity measure, equivalent to a 20-foot container) in the third week of 2020, plummeted to US $ 500 per TEU, in mid-year, according to SCFI. From then on, prices rose again, until they exploded in the fourth quarter. In the third week of this year, the price was $ 8,907 per TEU.

The SCFI is formed by an average of freight prices negotiated week by week – called in the spot market, contracted on the spot. Among companies that operate in foreign trade, there are reports of hires coming in the range of US $ 10,000 per container, says Sílvio Vasco Campos, president of the Brazilian Chamber of Containers (CBC). Large companies that import a lot usually have long-term contracts, which do not follow these prices, but also face readjustments.

Inflation of sea freight mainly affects the industry that uses imported components. The exporters of raw materials avoid the problem, because products such as soybeans and iron ore are transported to China in bulk carriers, without containers, explains José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB). In addition, even in the export of manufactured goods, many marketing contracts leave the cost of freight with the buyer.

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For Souza, from Centronave, the normalization of freight prices may take time, due to the pace of vaccination, as the pandemic continues to affect transportation productivity. Logistics efficiency depends on chaining. A loaded ship leaving China needs to stay in the Port of Santos for the shortest possible time, where it collects other containers full of Brazilian exports. Crew changes need to be agile, but sanitary barriers have kept ships at bay longer. The picture was worse, but it still hasn’t returned to normal.


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