Steel pricing, freight costs and global trade: an update

There have been front-page headlines all across the United States about steel pricing and the state of domestic and international shipping. Director of Supply Chain of Growglide, Eddie Xiao is an international shipping expert. In this article, he talks about the current shipping situation. 

"We are seeing a record high that is nearly triple the 20-year average. This is primarily driven by the economic recovery- including monetary policy and increased vaccination coverage. Steel mills are slow to resume production, and that created a massive steel shortage

Some say it is a bubble and will be short-lived. It’s possible. But so far we haven’t seen any signal of the trend reversal."

There are a couple of major factors. Firstly, container and vessel demand is overwhelmingly driven by China’s buying spree, which accounted for 48.5% of all dry bulk-ton miles in 2020. China experienced an economic growth of 2.3% (while most other countries went negative).

The domestic infrastructure agenda led by the Biden administration will drive the demand for deliveries of building materials like steel and cement and tie up smaller ship sizes. In fact this has already happened – Chinese steel exports in March were 40% above January and February, respectively. That is a four-year high according to Marine Strategies International. By the beginning of May, the spot rate for Asia-West Coast is 3.2 times higher than in mid-May 2020, up 228% year-over-year.

"As limits on vessel supply cannot be met quickly, I suspect the higher freight cost is here to stay, at least for the rest of 2021.

In short – The wholesale shift in spending by homebound consumers from travel and entertainment to home improvement has overwhelmed the capacity of the end-to-end system. Containers have been unable to be quickly offloaded and moved through terminals and then unloaded at jam-packed distribution centers, which has slowed down repositioning of containers back to Asia, reducing the capacity of the entire system."

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