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ACCC issues warning over ‘rapidly rising’ freight rates

The COVID-19 pandemic has destabilised the global container freight supply chain, with delayed shipments and rapidly rising freight rates putting intense pressure on Australian exporters and importers, according to a new report from the ACCC.

stevedoring report accc.jpeg

The warning echoes concerns expressed throughout this year by industry suppliers including Spicers Australia, who said in August that "a terrible imbalance” between supply and demand had led to an explosion in shipping costs that was unlikely to improve before the second half of 2022.  

The ACCC’s new Container Stevedoring Monitoring Report 2020-21 looks at the impact of the current global logistics crisis on Australia’s container trade, as well as the prices, costs, and profits of stevedores at Australia’s international container ports.

It finds that a surge in demand for containerised cargo and extreme congestion across the global supply chain have caused major disruptions and delays.

A number of Australian exporters are struggling to meet their contractual obligations, and some large retailers are so concerned that their cargo will not arrive before Christmas that they are buying their own shipping containers and chartering their own vessels.

rod sims accc
"A cascading effect across the
 globe": Rod Sims, chair ACCC

“International shipping line movements normally run lean and just-in-time, but a surge in demand and COVID-19 outbreaks that have forced numerous port operations to temporarily shut down have caused congestion and delays with a cascading effect across the globe,” said ACCC chair Rod Sims.

“Pre-pandemic, the sector would have likely been able to manage such a surge in containerised demand, but the simultaneous destabilisation of almost every part of the supply chain has left them without any spare capacity and struggling to cope."

The report shows that freight rates on key global trade routes are currently about seven times higher than they were just over a year ago. However, even at these rates, shipping lines cannot guarantee on-time delivery.

SP Global Platts container index
 S&P Global Platts container index (US$/FEU): August 2017 to September 2021 - FEU (forty-foot equivalent unit) is a measure of volume in units of 40-foot long containers

 “The margins of Australian importers and exporters are being squeezed, as they are all around the world, and the current situation is very challenging for businesses that rely on container freight,” Sims said.

The ACCC predicts that the operation of the global supply chain will be restored and freight rates will fall once the shocks caused by the pandemic stop. However, Australia risks becoming a less attractive destination for shipping lines unless productivity, workplace relations and supply chain inefficiencies are addressed, it said.

The report found that the privatisation of four major container ports in Australia (Port Adelaide in 2001, Port of Brisbane in 2011, Port Botany in 2013, Port of Melbourne in 2016) has brought some benefits to the container industry through more dynamic port operations. However, it has also led to higher prices, at least at some ports.

The report recommends that governments, industry and unions address industrial relations and restrictive work practices, limit privatised ports’ ability to impose excessive rents and charges, and repeal Part X of the Competition and Consumer Act 2010 to facilitate greater competition between shipping lines on Australian trade routes.