Why are Freight Prices Increasing in Maritime Transport for African Ports

By Cem Perdar

Manufactured products for centuries make their intercontinental journeys through sea transportation in world trade. Up to 90% of world’s merchandise are carried on the sea. In this case, it brings maritime transport to the fore more than air, land and railway. With its price advantage and easy intercontinental network, the importance of seaway container transportation in trade is as critical as production, raw material supply and packaging. Maritime transport is one of the most vital pillars of trade, especially for regions whose supply network is mostly dependent on imports, such as African countries.

As of January 2021, exporters faced two big problems in maritime traffic. The first is the difficulty in finding empty container equipment, and the second is the exorbitant container prices. In this article, I examine the price increases in major African trading ports such as Mombasa, Dar es Salaam, Douala, Apapa, Durban and Dakar. The main reason given for the increase in this freight prices is the fact that the manufacturers, who paused production at the Covid-19 pandemic period, focused on export again with the slowdown of the pandemic burden. With the desire to feed the markets previously left without goods, the demand for exports has increased significantly. This is the reason that there has been a serious shortage of empty container equipment in the world, and accordingly, the price of the empty container in one-way transportation has significantly increased.

Let us start with the ports of Mombasa and Dar es Salaam, which carry East Africa’s largest cargo loads. These two ports are the gateway of the East African region to the world. The two host all trade activities not only for Kenya and Tanzania, but many countries such as Uganda, Rwanda, Burundi South Sudan, Malawi, Democratic Republic of Congo. In the last 8-9 months, almost all imported products in the African market have reached end users at higher prices than before. The main reason for this is the increase in freight prices of up to three or four times. Taking an example of Turkey, one of Africa’s biggest strategic trade partners; while a 20 FT container price from Turkey’s Istanbul port to Mombasa was around 600-700 USD in 2020, it has reached the level of 2200-2300 USD today. This price increase also has a direct effect on the unit costs of the products in the container. Almost the same price uptrend applies to the port of Dar Es Salaam. We should not just think of it as maritime transport, there is also inland transport of goods arriving at the port at the end of the day. Inland transport of containers moving from Mombasa to inland regions such as Kampala, Juba, Goma, etc. underwent a significant increase at the same rate as maritime routes.

Unfortunately situation is hurting importers of South African regions as well. Freight cost from Turkey to Durban was around US$700-800 last year but now is US$2000. As you know, Durban is the biggest hub of maritime trade of Southern African region. From there, thousands of containers pass to Gabarone in order to fulfill the need of Botswana trade. Thus these price increases are affecting negatively Botswana business people as well.

The same position is felt even more in West African ports. The container price increase for these ports, which feed at least 10 countries in the sub-Saharan region, such as the ports of Douala, Dakar and Apapa, hurt both the importer and the end user in high doses. As an example, let us take the port of Douala, the heart of Central African geography. Sea transportation from Turkey to Douala for 20 FT container prices were around 900-1000 USD 8-9 months ago, today it has reached up to 4000-4500 USD. This unlimited price increase has led to serious increases in the cost of basic needs such as food and textiles in important markets such as Cameroon, Chad and Central African Republic. The local people, who are already struggling with the difficulties brought by Covid 19, also have to fight against the price hikes caused by sea transportation to the products. Although these price increases have had a very negative impact on all ports in the world, especially Chinese ports have received one of the most important coups. One way China – African ports’ container prices, which were 2000 – 2500 USD last year, have reached around 7000-8000 USD nowadays.

Finding free equipment and available ships, increasing container prices put exporters in a very difficult situation. The manufactured products remain in the warehouses for weeks due to these transportation problems and this creates unnecessary inventory costs for the exporters. In addition, the manufacturer covers some of the high freight prices in order to support the importers. This leads to a decrease in commercial profitability. At the end of the day, the lines operating the containers and ships earn the most profitable part of this transaction.

In my personal opinion, although the peak points reached in export figures will experience a general downward trend as of the first quarter of 2022, I do not think that there will be a serious decrease in the rising freight prices. Therefore, in the coming period, both exporters and importers have to deal better with these high freight prices with new solutions.

Conclusion: In an ideal world, to make these inflated prices reduce you would expect importers and exporters to suddenly stop or minimise their activities until the shipping lines restore their prices back to the normal levels. Yet unfortunately, the interconnected world trade system and the fact that even most essential goods are internationally traded do not allow traders to stop their activities. In fact, back to school and new year seasons are ahead of us and trade will increase at this time of the year. Realistic solutions to this freight crisis are:

Leaders and representatives of shipping lines should discuss this issue and find a solution that is acceptable to both parties. Ugandan trade executives should also present their ideas. When all stakeholders of this crisis gather around a table and discuss their issues with sincerity, I believe a middle way can be found for Uganda market.

If there is no way to push the lines to restore their prices, in that case importers and manufacturers should shoulder the heavy burden together. Both parties should sacrifice a small portion of their profits in order to prevent one of them being affected very badly. But please keep in mind that this latter is a short-term solution and without intervention, today’s freight prices are not sustainable in the long run.

Cem Perdar, Export Sales Manager/​Africa at Pakmaya, Pak Holding