Freight costs: COVID-19 hit much harder than financial crisis

International shipping costs increased 72.3 percentage points, from a low of -22.0% below trend in the first quarter of 2020 to a high of 50.3% above trend in the third quarter of 2021. (Photo: 123RF)

We suspected it, but a study confirms it. The COVID-19 pandemic has caused freight transportation costs to rise much more than during the 2008-2009 financial crisis, which also severely affected the global economy.

This is what reveals an analysis of the Federal Reserve of Saint-Louis, published on January 3 and entitled The Dynamics of International Shipping Costs.

To make this comparison between the two crises, the authors of the analysis used data on US shipping costs and international trade volumes from 2003 to 2021.

Subsequently, they focused on ocean shipments and measured the costs of international shipping from the United States, using a freight cost index between China and the United States.

Shipping costs have stalled considerably relative to actual activity (imports, in this chart) during the COVID-19 pandemic. (Source: Federal Reserve of St-Louis)

Thus, the authors observed that international freight costs increased 41.0 percentage points after the global financial crisis, from a low of -26.8% below the trend in the third quarter of 2009 to a low of -26 , 8% below trend in the third quarter of 2009. Peak 14.2% above trend in the third quarter of 2010.

Analyzing the current crisis, the authors expected international shipping costs to rise by a similar amount as the economy recovers from the COVID-19 recession.

However, they observed that international shipping costs increased 72.3 percentage points, from a low of -22.0% below trend in the first quarter of 2020 to a high of 50.3% above trend. in the third quarter of 2021.

The authors were even able to identify the part related to outages directly related to the pandemic, which derailed supply chains.

“We conclude that just over half of the 72.3 percentage point increase in international shipping costs after the COVID-19 recession is the result of standard forces of demand and supply,” while the remainder is the result of of interruptions in international shipping, ”they write.

The supply chain has been derailed

When the coronavirus spread across the globe in the spring of 2020, governments, businesses and consumers rushed to buy teleworking equipment, medical products and goods.

The COVID-19 thus interrupted the “choreography” of the transport of goods, because the normal demand for containers (goods, components, equipment, etc.) no longer corresponded to the supply in terms of quantity, place and time required, as explained Les Affaires in September.

Global logistics chains that shipowners had taken decades to implement, gradually adapting to global demand, seasonality, and the production cycles of millions of companies have therefore become out of sync.

The blockade of the Suez Canal in the spring of 2021 only made the situation worse.

How to make your supply foolproof? Lack of manpower, climate problem, blockage of a canal, stationary port, these problems are so great that it seems impossible for an SME to ensure its supply in a globalized chain.


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