Countries in MENA rely heavily on imports, especially healthcare supplies and equipment. The global increasing shipping rates has only brought turmoil to the health industry in MENA. With some countries already exporting more goods than they were before the pandemic, others are still lagging behind global output recovery. While major trading countries recover, goods trade will continue to rise as will healthcare costs.
With competition for maritime freight capacity expected to remain intense, the imbalanced recovery will worsen some of the world trade’s challenges, such as misplaced empty containers. All of this will put upward pressure on freight rates in the foreseeable future.
Imbalances in the demand for healthcare supplies and equipment and shipping companies decreasing capacity on main routes and shortages of empty containers; these were all issues that arose from the start of the pandemic. Global demand for healthcare supplies has rebounded strongly as the recovery has advanced. Competition for maritime freight capacity has increased since economies open up further and replenished stocks across several supply chains.
Capacity on major maritime routes has rebounded to levels seen before the major lockdowns in 2020. Yet, blank sailings (canceled port visits) continued to reduce scheduled capacity by 10% in the first quarter. Current projections average 4% base improvements this quarter. With cancellations being the result of the delays, shipping capacity may continue to be taken out of the system at short notice.
Ocean rates are remaining very high, and transit times are variable, due to continuous pandemic-related delays and closures, nonstop demand for ocean freight from Asia to the US, and a severe lack of capacity. As importers and exporters seek alternatives to sea freight, air cargo rates are also rising.
Furthermore, shops are still fighting to keep inventory levels up. They are now looking to get a head start on peak season-high costs as long delays and equipment shortages may not be alleviated. An estimated 5.5% of all maritime capacity is currently stranded outside a port. And storage space for finished goods awaiting shipment is becoming tight, worsening the already acute capacity shortage. Importers and exporters are scrambling to obtain capacity, load their cargo, and deliver it on time. These problems have been exacerbated by the latest outbreak at Yantian and the ongoing effects of the Suez blockade.
Additionally, because there are few alternatives to ocean freight, it is difficult to avoid rising transportation costs right now. Alternative forms of transportation, such as the shipment of electrical devices by air or train, would generally be a possibility for higher-value products. However, capacity is restricted at the moment and tariffs have risen as well. Shippers of lower-value goods have seen freight prices rise from 5% to 20% of their sourcing expenses. Because it is difficult to absorb increases in margins on this scale, consumers may experience the effects through price hikes.
Shippers are turning to air cargo because ocean freight is too expensive and unpredictable. This demand is affecting pricing and raising the landed cost of goods. Consumer demand has pushed global air freight volumes back to pre-COVID levels. According to Freightos.com marketplace data, Asia-US rates are jumping roughly 25% to most destinations in April. While rates on Asia-US routes have dropped by around 5% in the last week, costs are still up to three times higher than in a regular year. Airfreight peak season is expected to begin in September. Not to mention importers scrambling to ensure that Christmas inventories reach schedule. Furthermore, COVID-19 breakouts forced some origins to implement regional lockdowns. This has an effect on manufacturing output and the flow of passengers through airports. Shipping rates are likely to remain high for some time due to the tight conditions.
Simply put, the increase of shipping rates in relation to the price of healthcare supplies and equipment is the basic economic law of supply and demand. When demand increases and supply cannot provide, a shortage occurs. And then there is competition between businesses (or in this case healthcare facilities) to obtain the resources needed.
For more information on medical supplies and equipment in MENA, click here.
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