Why are Product Prices on the Shelves still Increasing when Sea Freight Prices are Falling?

So why can’t the end users see the effect of these decreases in product prices on the shelves? Infact, the reason is very clear, according to experts: Inflation, overstocked products, and rising energy and labour costs are the factors that trigger a seriously rising price graphic. Nowadays, when exporters and importers are starting to breathe a little, unfortunately consumers cannot feel the same relief in final product prices.

Let’s go back to the beginning. How did the freight crisis break out in the world? How did it come into being? With the coronavirus, the crisis of “finding empty containers and equipment” had begun on the sea route, where approximately 80 percent of world trade was carried out. First, the increases in freight prices, which started in the Far East, America and Europe, were felt in almost all parts of the world, breaking out into very serious crises. Freight prices doubled by 10 in the said period. Freight prices on the Far East-Europe line, which were between 2 000 and 3 000 USD before COVID-19, exceeded 20 000 USD.

Due to the epidemic, strict restrictions on commercial activities led to a large decline in retail sales, and sharp economic recovery was seen as the restrictions were eased and countries started to open up again. Since the ships coming from China to the US could not unload their cargo, they could not return in planned time, and this increased the container problem. Many industrialists, from auto makers to consumer goods and textiles to furniture, could not deliver their orders on time due to logistical problems. This caused serious crises in the supply chain processes and increased the prices of the final products.

Today, large vessels can carry more than 20 000 containers while the construction of a new ship takes more than two years. Therefore, new ship and container orders could not help the current crisis in the short term.

What is the primary reason for increases in freight rates?

In the heaviest days of the epidemic, as the global quarantines closed and everyone was in their homes, people were denied the chance to spend money outside while consumers supported the economy by shopping online. The sudden supply and demand for commodities has caused operational costs to rise, particularly freight container shipping rates from Asia.

Freight prices doubled, then tripled, then quadrupled with a few large shipowners controlling the shipping market. According to the information received, freight costs from China and East Asia to US ports exceeded $22,000 last September. In early January 2020, the average cost was $2,500.

• What are the factors underlying the current freight price decline?

Demand for new products is also low due to the financial bottleneck brought on by inflation. Vendors, manufacturers and retailers are not ordering much from Asia as consumer behaviour has changed dramatically over the past two years. Inflation, which is still high in both America and Europe and is at its highest level in the last 40 years, has forced shoppers to be more strategic about how they spend their money. This includes giving up clothing and electronics aisles to meet needs like food and gas.

But will prices ever drop? Experts claim that they will fall but the decline will definitely take time. Inflation, especially high labour and gas costs, still hurt companies. According to experts, the sharp drop in freight shipping rates is expected to eventually soften prices. 

• How should the effects of these freight price decreases on African markets be expected?

As it is known, I regularly visit African markets due to my job. That’s why I always have the chance to observe the commodity price market in Africa. Yes, although the reduction in freight prices seems to have a positive effect on the final product price to a certain extent, significant price increases due to inflation are striking, especially in products of European origin. On the other hand, although it seems that there will be a serious decrease in unit prices in China origin items due to freight, the effects of the serious energy price increases prevailing in the world seem to be felt in all products.

My current observation is that there has been a serious contraction in the African markets recently, and the most important reason for this is the low incomes of the people and the weakening of their purchasing power in the face of ever-increasing prices. You can find the freight price change between European and African ports in the last year in the table below.

In 2020 and 2021, large carriers announced huge profits, thanks to the equation between the supply, demand and production triangle. An unprecedented demand for containers and exorbitant price increases have occurred in the last one to two years. These demands were excessive, and the shortage of containers had brought great hikes in freight prices, as they had to be.

Today, however, things will not be as profitable for shipping lines as they were in recent years but will proceed in a more balanced way. This is because the supply-demand balance in the world is on track, and trade has entered the pre-Covid line. In the last two to three years, there has been a great fluctuation in the maritime transport sector, but the waters have gradually calmed down.