High price of freight worldwide How does it affect logistics in Paraguay?

The biggest problem facing international logistics today is the high price of freight , which threatens the profitability of import and export operations between Asia and the rest of the world. world, including Paraguay.

This problem has become more noticeable in the wake of the Covid-19 pandemic, which has caused disruptions in the chain of production, distribution and transport of goods around the world.

But a key element in this situation has to do with the so-called “container shortage“, the cause of which is related both to the pandemic and to the growing imbalance in the trade balance between China, the United States and Europe.

The rising cost of the services that must be hired at the port for the loading and unloading of ships, which have risen due to a deficit in manpower, also has a lot to do with it.

As a consequence, shipping companies have considerably increased the amount of freight, in order to cover their operating costs.

And this has begun to negatively influence the price of many products and raw materials in all countries of the world.

How does the increase in freight influence the logistics chain?

Traditionally, the cost of transportation freight represented only a fraction of the final price of the product.

But it is not only necessary to transport the final product, but also the raw materials to make it.

Large steel mills need to move millions of tons of iron from other countries to feed their furnaces. The same happens with aluminum producers, which need bauxite to operate.

It is also necessary to transport spare parts, machinery and finally the finished products. And at the moment the cost of transport increases if containers are required and even more if it is carried out by sea.

As reported by the American specialized newspaper The Wall Street Journal, since the beginning of the pandemic in March 2020 to the present, freight prices worldwide have increased up to 20 times their initial value.

To this must be added a notable lack of labor and temporary suspensions of port operations and border closures due to the Covid-19 outbreaks in producing countries such as China and Europe.

This in turn has severely limited the production of companies that manufacture consumer goods, electronics, vehicles, heavy machinery and food.

In many cases, the operations of land, air and maritime transport companies have stopped for weeks due to sanitary closures imposed in some countries.

All this in turn affects the costs of raw materials for manufacturers and the price of the final product for buyers-importers. In several sectors it has been alerted that the freight has come to cost more than the cost of production of the merchandise.

The container problem

A problem that had already existed since 2019 and that has worsened since the beginning of the pandemic was the shortage of containers in the export ports of Asia and especially China, Korea and Japan.

The reason is that these containers are dammed in the ports of the United States and Europe , where their movement has been slowed by problems in the port loading and unloading services.

In the case of the United States, its notable trade imbalance with China had begun to create a one-way flow of goods. Thousands of containers arrived in the US each week filled with cargo made in China, but far fewer returned with US goods.

Because moving an empty container has a cost that few want to bear, this equipment began to pile up in US ports, causing a very serious problem for logistics companies.
As a result of the pandemic, additional problems appeared such as increasing waiting time to bring ships to port , slower unloading and a serious shortage of drivers to move containers out of port.

For this reason, the containers are not emptied in time to return with other loads to Asia and restart the transport cycle.

What options do companies have to move their maritime cargo?

Many experts also point out that since 2010 maritime transport has remained in the hands of a few powerful shipping companies, which have taken over the main routes.

At a time when there are transportation failures worldwide, many companies are forced to pay higher rates to these large shipping lines to have cargo space.

The other option is to hire smaller boats, which tend to cover shorter routes. This forces the use of up to 2 and 3 ships instead of just one to be able to carry the same cargo over long distances, making transport logistics more expensive.

Large automotive companies such as Toyota and Hyundai or wholesale product distributors such as Walmart have chosen to hire their own ships to be able to move their products from one continent to another.

According to experts, this problem could continue until beyond the second half of 2023.

How does this situation affect Paraguay?

In an interview with the newspaper ABC Color, the president of the Paraguayan Importers Center, Elzear Salemma, warned that freight prices are continuously increasing throughout the world.

Paraguay is not spared from this problem that affects all the nations of the world and especially those that depend the most on maritime transport.

For this reason, he considered that there are many possibilities that this situation will cause a increase in inflation in Paraguay in the last quarter of 2021.

To illustrate his statement, he said that before the pandemic the cost of bringing a container from China to Paraguay was about US $ 4,000. By March 2021, this price was already over US $ 12,000.

However, by September 2021 this cost had climbed to US $ 16,000.

Additionally, there is another problem that makes import and export logistics very expensive, such as the low level shown by the rivers of Paraguay.

This makes it necessary to change the loading and unloading points of containers in order to complete the route by land to or from Asunción, reducing the profitability of the Paraguayan companies’ operations.

We help you bring your products from China and the rest of the world

Considering the current situation, it is important to have the advice of experts when setting up and preparing an import or export project in Paraguay.

At Alfa Trading we have the experience and ability to assist our clients in all international logistics operations, both by sea, air and land.

We can help you design the best strategy to bring your products from China, the United States and Europe or bring them from anywhere in the world.

We are a company with more than 28 years of experience and we have cargo agents in the main ports of the world, ready to support you in the midst of the current situation facing logistics worldwide.