Sea-Intelligence’s latest analysis on container shipping costs show that some smaller shippers could potentially go bankrupt because of the extreme disparity between contractual and spot rates. The gap was $10,000 per FEU (forty-foot equivalent unit) four months ago but is now approaching $20,000.
The Sea-Intelligence report calculated freight costs as a percentage of the cargo value. On average, a large shipper with fixed liner contracts will incur freight costs up to 18% of the box’s cargo value, a 5% increase from pre-pandemic times. However, the small shipper will see freight costs jump from 7% to 62%.
Calculating the impact on overall profitability, larger contract shippers essentially see their profits reduced to zero, but the small shippers see their profits become losses. "He current freight crisis shifts competitiveness between shippers. In turn, this also means the crisis is a clear opportunity for competitive positioning for some shippers,” Sea-Intelligence stated.
James Hookham, director at the Global Shippers Forum (GSF) said to Splash, “The killer for many small businesses will be the squeeze on their cash flows as they will need to settle higher shipping bills before they have a chance to renegotiate their contracts with larger customers. Businesses die when they run out of cash not because they run out of goods to sell.”
Judah Levine, head of research at global freight platform Freightos cautioned, “Despite the dip in rates, congestion and demand are expected to keep delays and elevated rates a reality not only through the end of this year but possibly through the end of 2022 as well.”