151. Container shipping costs are through the roof. Who's paying?

Episode Summary

Executive Summary: Trade Talks revisits supply-chain strain a year into the pandemic, showing demand for goods remained exceptionally strong while ports, containers, and trucking capacity stayed congested. Chris Rogers and Audrey Ross describe how higher freight costs, equipment shortages, and China dependence reshaped trade, forcing firms to absorb costs, raise prices, and rethink sourcing and shipping practices.

Main Topics: Persistent consumer demand for goods (Priority: 5/5): Chris Rogers explains that the pandemic-era shift from services to goods never faded; demand for furniture, electronics, and other durable items stayed elevated, driving continued container volume growth. Port congestion and equipment shortages (Priority: 5/5): The episode details how containers became warehoused assets, exports waited for empty boxes, and shipping capacity was diverted to priority routes like Los Angeles and New York, deepening global bottlenecks. Exploding freight rates and surcharges (Priority: 5/5): Both guests describe dramatic increases in shipping costs, with rates rising across routes and additional fees for delays, chassis shortages, and premium markets such as the UK after Brexit. How firms are coping with higher costs (Priority: 4/5): Audrey Ross explains that companies must decide whether to absorb freight costs, pass them through to customers, or build them into future quotes and margins because orders are placed months in advance. Regulatory scrutiny of shipping lines (Priority: 4/5): Chris Rogers notes concern from regulators in the US, EU, and Asia about possible favoritism toward exports, container-line alliances, and whether prices reflect market scarcity or coordinated behavior. Limits of supply-chain diversification away from China (Priority: 4/5): Audrey Ross argues that moving production out of China is difficult because upstream inputs still come from China and other countries lack China’s manufacturing ecosystem and skills base. Outlook for normalization (Priority: 4/5): Chris expects congestion to persist through at least the first half of the year, with shipping practices possibly changing only gradually rather than a quick return to pre-pandemic conditions.

Key Arguments: Strong goods demand, not just temporary holiday distortions, continued to drive import growth and congestion. Containerized trade was stressed by a mismatch between bulky consumer goods demand and limited logistics capacity. Importers used containers as storage because warehouses were full, worsening shortages for exporters. Freight rates rose so much that they became a major cost item in company earnings calls and supply-chain planning. Many firms are likely to absorb some shipping costs in the short term, but sustained pressure may force broader price increases. Regulators are questioning whether shipping alliances and carrier behavior amplified price spikes or constrained export access. Diversifying out of China is hard because China remains embedded in global supply chains and manufacturing capabilities. Any real change in shipping and sourcing practices will take time because ships take years to build and capacity cannot be expanded quickly.

Data Points: US imports year-over-year: up 20% - Chris said February US imports were still 20% higher than a year earlier and versus 2019. US shipping costs increase: +$3 billion per month - Chris estimated the increase in the cost of shipping into the US this year versus last year. Cost to ship into the US: $5.2 billion in February - He said total sea-shipping cost into the US in February was about $5.2 billion, versus just under $2 billion the year before. Earnings-call mentions of freight: about 25% of companies - Chris said roughly a quarter of companies reviewed were talking about freight costs. Historical comparison for freight mentions: highest in 7-8 years - He said the share of firms discussing freight was the highest seen in their data going back seven or eight years. Average global cost to ship a 40-foot container: about $4,600 at the beginning of March - Chris cited this as a global average, before noting it varied widely by route. Average global cost to ship a 40-foot container: just over $1,000 on June 1 - Chris contrasted the earlier March level with the June 1 figure, indicating substantial volatility in rates. Asia-to-Europe container rate: nearer $10,000 - Chris said this route remained much more expensive than the global average. UK container rate: $11,500 - Chris cited this as a Brexit-related premium versus roughly $3,000-$4,000 the prior year. Typical LA container cost before spike: $2,000-$3,000 - Chris and the hosts discussed prior costs for shipping into Los Angeles. LA container cost during spike: $6,000-$7,000 - Chris described the elevated cost for a container into Los Angeles. Rotterdam container cost: $9,000 - Chris cited Rotterdam as another high-cost market. Time to build a ship: 2-3 years - Chris said new vessel capacity cannot be added quickly because ship construction takes years. New ship orders ready: 2023-2024 - Chris said new boat orders were only starting to appear and would arrive in that period. Container cost increase on quoted goods: $200 expected vs. $4,000 actual - Audrey said she might budget a modest container-price buffer, but the real increase was far larger. Cost-added pricing strategy: 2 cents per unit - Audrey described some companies adding a per-unit fee to customers to offset freight increases.

Pivotal Quotes: "The demand surge has gone absolutely nowhere. In fact, it's gotten surgier, if that's a word that it is now." — Chris Rogers: Describing why logistics pressure persisted a year after the initial pandemic shock. "It's just been a massive issue. It's just, the prices are crazy." — Chris Rogers: Summarizing the escalation in shipping costs across major routes. "It is a challenge for people in our industry because you do produce a product so far in advance." — Audrey Ross: Explaining why firms cannot easily anticipate or offset freight-cost spikes in advance.

Implications: Shipping disruption has become a structural business cost, not a short-term shock. Firms may need to redesign sourcing, contracts, and pricing, while regulators keep pressure on carrier behavior and alliances.