Shipping tariffs rates, which have seen a spike in the last month and a half, are expected to remain elevated for the next two-three months, as demand for shipping containers is expected to remain high on the back of pent-up demand as global economies open up from the aftermath of the COVID-19 pandemic.
These already elevated tariffs are likely to rise even more over the next two weeks after a massive cargo ship turned sideways in Egypt's Suez Canal, one of the world’s busiest maritime channels, blocking traffic in a crucial East-West waterway for global shipping, analysts said.
“Depending on how long it takes to free the Ever Given, the blocking of the Suez Canal will lead to higher charter rates as ships travelling from Asia or Australia to Europe have to take a longer route, thereby reducing the capacity on these route at a time when demand is very high,” said Anand Sharma, Director at Mantrana Maritime Advisory Pvt Ltd.
The Baltic Dry Index, a key indicator of shipping rates, is an index of average prices paid for the transport of dry bulk materials across more than 20 routes. The index is often viewed as a leading indicator of economic activity because changes in the index reflect supply and demand for important materials used in manufacturing.
It has risen as much as 60.6 percent since February 2, 2021 and peaked at around $2,319 on March 22, 2021.
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About 10 percent of all global trade flows through the Suez Canal, which allows tankers and container ships to avoid a long trip around the southern tip of Africa.
The MV Ever Given getting stuck on the Suez Canal is expected to create a seven to ten days backlog in commercial shipping schedules which is expected to lead to tariff rates rising even more in the coming weeks.
Medium Term (Next two-three months)
Over the medium term the charter rates of ships is expected to remain elevated as tariff volumes are expected to rise as the global economy restarts following the aftermath of COVID-19.
“Pent-up demand from the manufacturing sector is expected to keep charter rates high for the next three months… Most manufacturing companies are pushing exports after COVID-19 hit supply chains last year,” a Mumbai-based maritime expert said.
He added that most domestic shipping companies are aggressively pushing routes to Europe and the US, as the economies in these two regions have opened up the slowest from COVID-19.
“Our ships were not travelling on Europe and US routes till October, since then demand from these two markets has risen dramatically, and we already have a backlog of two months or around 30 trips,” a Gujarat-based shipping company that has a fleet of around 20 ships said.Total volumes handled at Indian ports rose to 600.625 million tonne in February from 542.136 in January, and volumes are expected to rise even further in March.