Container freight rates: Fresh surge in prices propels key commodity markets to record highs

New York — This is the first of a two-part series on the ripple effect caused by rising container prices. Part two: Surging container freight rates support scrap, challenge rice, US petrochemical markets

A fresh surge in container freight rates toward year end -- on the heels of a bullish run-up since the second quarter -- is having a ripple effect across commodity markets including metals, petrochemicals and agriculture in December, posing logistical challenges and spurring sharp rises in product prices.

These markets are likely to have to continue grappling with elevated container freight rates in the first quarter of 2021 amid expectations that the current logistics bottlenecks and challenges will take months to resolve.

The Platts Container Index, which is based on a weighted average of all Platts container assessments, was up 143% from the start of the year and at its highest since it was launched in July 2017 at $2,756.35/FEU on Dec. 1. The surge was initially underpinned by gains in key trade routes such as North Asia-US and more recently a spike in North Asia-Europe prices, the impact of which was spilling over into other trade lanes.

Prices from North Asia to the east and west coasts of North America turned bullish in May as demand for goods such as personal protective equipment and home office equipment surged due to the pandemic, and the run-up to China's Golden Week holidays in early October in particular spurred a surge in rates.

Expectations of a seasonal year-end lull in prices were upended when North Asia-Europe container freight rates hit new highs, creating a knock-on effect on other trade lanes globally.

"There is an acute container shortage across Asia. Spot bookings now need to be made at least 21 to 25 days in advance to ensure availability of containers as well as to get space on ships," an India-based freight forwarder said.

A freight forwarder in Thailand said: "We have to reject many bookings as there are no empties; most of my time now just goes in arranging for an empty container."

The reaction across commodity markets has been mixed, with many products seeing prices spike as shipping options diminish.

ALUMINUM, ALLOY PRICES AT MULTI-YEAR HIGHS

Japan's imported primary aluminum premiums or the MJP, the regional benchmark, surged 57% to $105-$115/mt plus LME cash, CIF Japan between April 15 and Dec. 1, Platts data showed.

Typically, container freight rates rarely feature in price discussions. However, higher container rates have underpinned the price rally as aluminum producers factor freight costs into premium sales, an Asian producer source said.

"Freight has at least doubled - I see some routes that have more than tripled," an international trader said.

Meanwhile, the downstream aluminum alloy ADC12 CIF Japan spot market saw prices rise nearly 8% week on week to $2,115-$2,135/mt in the week to Dec. 1 -- a high not seen since 2014 -- on the back of rising freight prices, and compounded by a global shortage of scrap that has led to higher production costs and strong demand from key buyer Japan.

A source at an international producer noted that freight costs have risen significantly, depending on the ports.

CHINA PVC PRICE AT 11-YEAR HIGH

The scarcity of containers has affected trade flows and caused delays in Asia's polymers markets as well.

Polymer prices in Asia have risen sharply over the past two months, with some markers assessed by Platts hitting record highs, in the wake of shortages induced by production outages. That price rise has been compounded by the surge in freight costs.

Suppliers in Asia are still struggling to ship out polymer cargoes booked in September and October due to the container shortage, market sources said. For December, suppliers are finding it increasingly difficult to get space for their cargoes on vessels, even though buyers are willing to pay premiums for prompt delivery, a Mumbai-based polymer trader said.

Intra-Asia freight rates have more than doubled on most routes due to the space crunch. Freight has increased to $65-$70/mt for most destinations intra-Asia in December from the usual level of $20-$25/mt, a producer said.

Some polymer producers in Asia have started offering cargoes on an FOB basis due to the uncertainty over shipments, while others are seeking letters of credit with longer validity periods, a source said. Some have also sought to renegotiate polymer prices as the increase in freight costs cuts into their margins, the source said.

With freight costs rising, polyvinyl chloride prices surged to a record high of $1,290/mt CFR India Dec. 9, while the CFR China price shot up to an 11-year high of $1,160/mt. Traders said there was little respite in the offing, as the freight issues are likely to persist until at least February.

This is the first of a two-part series on the ripple effect caused by rising container prices. In the second, Platts turns its attention to how surging container freight rates have yet to impact rice and US petrochemical markets, but pressure is mounting: Surging container freight rates support scrap, challenge rice, US petrochemical markets