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

Episode Summary

Executive Summary: Trade Talks revisits supply-chain experts Chris Rogers and Audrey Ross to examine how pandemic-era disruptions evolved into a prolonged shipping crunch. Demand for consumer goods stayed exceptionally strong, container and freight shortages drove costs sharply higher, and congestion, equipment imbalances, and regulatory scrutiny kept the system under strain. Both guests describe firms adapting by passing costs through, absorbing margins, and rethinking sourcing, though China remains difficult to replace.

Main Topics: Persistent post-pandemic demand for goods (Priority: 5/5): Chris Rogers explains that consumer demand for durable goods and home-related items did not fade after the initial pandemic shock; instead, it intensified, keeping container volumes elevated and straining logistics. Supply-chain congestion and container shortages (Priority: 5/5): The conversation details how port congestion, warehouse constraints, and containers being used as storage reduced equipment circulation, worsening bottlenecks and delaying exports. Freight rates and surcharges soaring (Priority: 5/5): Both guests describe steep increases in shipping costs across major routes, with added surcharges for dock time, chassis shortages, and region-specific premiums such as the UK and Rotterdam. How businesses are coping with higher costs (Priority: 4/5): Audrey Ross explains how her company and others are recalculating quotes, adjusting margins, and debating whether to absorb freight costs or pass them on to customers. Regulatory and antitrust scrutiny of shipping lines (Priority: 4/5): Chris discusses concerns from the FMC, EU, and other regulators about possible coordination by carrier alliances and whether empty containers are being prioritized for Asia-bound return trips over exports. Limits to rapidly expanding capacity (Priority: 4/5): The episode stresses that new ships take years to build and container manufacturing was disrupted by Chinese factory shutdowns, making quick relief unlikely. China’s continued centrality in global manufacturing (Priority: 5/5): Audrey reflects on the difficulty of shifting sourcing away from China because of embedded supply networks, raw-material dependence, and the scale of infrastructure and skills built there.

Key Arguments: Demand for goods remained elevated and even intensified, especially for large consumer durables, so logistics problems were driven by real volume growth rather than only seasonal timing or Lunar New Year distortions. Container shortages were amplified by firms using containers as temporary storage, keeping equipment out of circulation and creating knock-on shortages for exporters. Freight rates rose far faster than normal business planning assumptions, forcing importers and brand owners to revise pricing, margins, and contract structures. Shipping cost increases are not merely a market-clearing commodity effect; regulators worry about possible coordination among large carrier alliances and uneven treatment of exporters. Companies often must absorb short-term cost shocks because products are ordered months in advance, but sustained high costs eventually feed through to customer prices. Replacing China-based supply chains is operationally difficult because upstream inputs, manufacturing capacity, and labor skills are deeply concentrated there.

Data Points: US imports growth: 20% year over year and vs. 2019 - Chris says February US imports remained sharply above prior-year and pre-pandemic levels. Shipping cost increase into the US: $3 billion per month higher this year vs. last year - Chris estimates the rise in sea-shipping costs to the United States. Total sea-shipping cost into the US in February: About $5.2 billion - Compared with just under $2 billion a year earlier. Average global cost to ship a 40-foot container: Around $4,600 at the beginning of March; just over $1,000 on June 1 - Chris cites a dramatic increase in benchmark global freight costs. Asia-to-Europe shipping rates: Near $10,000 - Chris notes route-specific rates can be far higher than the global average. Container cost into Los Angeles: $6,000 to $7,000 per container - Chris describes US West Coast freight inflation. Container cost into Rotterdam: $9,000 per container - Chris cites elevated European route costs. Container cost into the UK: $11,500 per container - Chris notes a UK premium layered onto global bottlenecks and Brexit-related frictions. Historical LA container cost: $2,000 to $3,000 per container - Chris compares current rates with last year’s levels. New ship construction time: 2 to 3 years - Chris explains why capacity cannot be added quickly. Company mentions of freight in earnings calls: About 25% - Chris says this is the highest level in 7-8 years of their data. Comparable peak tariff discussion: About 30% - For context, tariffs at their peak were discussed by around 30% of companies. Commodity basket price increase: About one-fifth in Q1 vs. Q4 - Chris notes broader cost pressures across energy, metals, and industrial commodities. Time Audrey’s firm took to ramp back up: About a few months; strong activity by September/October - Audrey describes the speed of recovery and product pivots.

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: He describes ongoing strong consumer demand for goods, especially durable items. "We started to realize that people were still shopping, there was still demand for goods on the shelves." — Audrey Ross: She explains how her company adapted by pivoting product lines quickly after the initial shock. "You can kind of use containers to store your goods." — Audrey Ross: She explains how importers effectively used shipping containers as temporary warehouse space, worsening shortages.

Implications: Shipping bottlenecks may persist through the near term, keeping freight expensive and forcing firms to rethink pricing, inventories, and sourcing. Even with higher costs and regulatory pressure, supply chains centered on China remain hard to unwind quickly.