Supply Chain Council of European Union | Scceu.org
Freight

Developing nations suffer from extreme freight rates

Developing world countries and their small and medium-sized enterprises (SMEs) are taking a huge blow from the current situation in liner shipping as for many of them the tariffs are prohibitive and they cannot ship their products.

The latest edition of the United Nations Conference on Trade and Development (UNCTAD) webinar series highlighted SMEs as the losing side of the container shipping crisis while large carriers and their alliances, as well as big freight forwarders, are reaping all the benefits.

“We see a complete crumbling of the supply chain of SMEs because they cannot absorb the cost of transportation,” said Denis Choumert, chair of the Global Shippers Alliance.

Choumert described today’s liner scene as a stage of war. “Everybody is trying to get the best out of these cash cows and nobody wants to imagine something different,” he said.

Even with the top exporting countries, such as China, which has seen exports rise 32% in the last six months, shippers need more containers for the US and Europe and that they have no choice but to pay the price.

I’ve never experienced levels of animosity between all supply chain partners

Chaichan Charoensuk, chairman of the Thai National Shippers’ Council and representative of the Asian Shippers’ Alliance, said that if the price continues to increase, shippers will collapse very soon. He called on cooperation and competition authorities to help look at the freight costs.

“If we do nothing, I cannot see the end of the tunnel, because the freight cost is unstoppable,” Charoensuk said.

He stressed that the whole sector needs to look under the iceberg. “There are huge invisible costs, such as the opportunity lost because of not being able to export due to container shortages and freight costs.”

John Manners-Bell, director of Foundation for Future Supply Chain, said the problems lie in the whole supply chain, which is saturated with cargo.

“I’ve never experienced levels of animosity between all supply chain partners. Everybody involved is at each other’s throats,” Manners-Bell said.

He said that the developing world are the real losers from this situation, with many countries being sidelined as major shipping lines are not calling at their ports anymore.

“SMEs, which are dominant in many developing countries, have lost out. They can’t book space, even if they do, they are not able to afford the prices in today’s spot market,” he said. 

Manners-Bell compared the shipping system to the situation in 2008 and 2009 when developing countries lost support from many banks and turned to China, which could probably be the result of this crisis again.

We need a more transparent market

Teresa Moreira, head of the competition and consumer policies branch at UNCTAD, noted that the maritime sector has raised issues from a competition law and policy point of view for decades as having the potential to lead to abuses of market power.

“It is certainly a situation that deserves to be looked into and demands action from several public authorities in dialog with business associations,” Moreira stated.

She said that governments can put a stop and temporarily control a very high rise in prices when such prices are having a negative impact on SMEs.

According to Global Shippers Alliance’s Choumert, regulation and competition authorities will not be able to solve the problem in the near future by capping and banning. The future is framing the market, not regulating it. “We have to find ways to set different contracts and we need a more transparent market,” he said.

Choumert said the key to unlocking this present crisis is better collaboration in the market. “Shippers together with carriers and forwarders should look in the future for solutions to increase the efficiency of supply chains and better use of ports. Digitalisation will be, of course, an important part,” he suggested. 

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