Container shipping in times of COVID-19: Why freight rates have surged and implications for policy makers

Policy Brief No. 84

At the start of the COVID-19 pandemic, expectations were that seaborne trade, including containerized trade, would experience a strong downturn. However, changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers.

As at the third quarter of 2020, lessening of lockdown measures and varying speeds of recovery worldwide, as well as stimulus packages supporting consumer demand, inventory-building and frontloading in anticipation of new waves of the pandemic, contributed to leading to a further increase in containerized trade flows.

Key points

  • Container freight rates have reached historical highs and rates to South America and west Africa are now higher than to any other major trade region. The obstruction of the Suez Canal by a grounded container ship contributed to a recent further surge in freight rates.
  • The underlying causes are complex and include capacity management by carriers and a severe shortage of containers as these are held up in waiting ships, combined with pandemic-related delays in intermodal connections. The impact of the container shortage is greater on longer and thinner trade routes to developing regions than on the main east–west routes.
  • The current surge is expected to last into 2021. In the longer term, policymakers need to focus on (a) further reforms in trade facilitation and ports; (b) improved tracking and forecasting; and (c) strengthening national competition authorities.