With the start of the second half of 2024, the logistics sector is concerned about the rising trend in the prices of imported products. This increase is due to freight rates, which could reach levels similar to those during the pandemic, making raw materials from China particularly expensive. Vanessa Bajaña, General Manager of the International Cargo Unit of Grupo Torres & Torres, analyzes this situation and the strategies the logistics sector is considering to address it.
How much are imported product prices expected to rise in this second half of the year?
I cannot specify an exact percentage increase in the final sale price of the product, as this depends on the type of product, each importer’s segment, and their commercial agreements with suppliers in the supply chain. However, in January of this year, the international maritime freight cost of containers from China, Ecuador’s main trading partner, ranged between $1,500 and $2,000. Currently, that cost is approaching $8,000. In other words, the freight price has quadrupled since the post-pandemic recovery. This increase directly affects taxes and tariffs, as the taxable base for calculating foreign trade duties includes the value of the merchandise, freight, and insurance.
What is the reason for this increase?
There are several causes behind this rise. First, the drought in the Panama Canal since late 2023, caused by the lack of rainfall due to El Niño, has slowed the crossing of ships. Additionally, the military conflict in the Middle East at the end of December 2023 led to attacks on merchant ships transiting the Suez Canal, forcing shipping companies to take longer and more expensive routes.
Another factor is the anticipated demand for imports of Chinese products by the United States and Europe, due to the exponential increase in maritime freight rates since April 2024. In particular, the increase in tariffs imposed by the United States on Chinese products, especially electric vehicles (tariff increased from 25% to 100% in May), has led to cargo destined for the U.S. being prioritized before this tariff took effect, relegating Latin America.
Moreover, there is a shortage of containers and space on ships in China, along with congestion in foreign ports where shipping companies must adhere to their scheduled routes and perform loading and unloading operations before reaching their final destination in Ecuador.
Have these issues in international ports and container shortages been present since the pandemic, and what is the difference now?
During the pandemic, we faced port closures in Asia and other parts of the world, leading to changes in itineraries, route cancellations, and a shortage of empty containers. This caused a significant increase in international maritime freight rates to China, reaching nearly $15,000. As a result, Ecuador requested that the Andean Community temporarily remove maritime freight from the taxable base for calculating taxes. This measure was approved in March 2022 and was maintained for almost two years. However, since December 2023, freight has once again been considered part of the taxable base.
After the pandemic, international maritime freight prices began to stabilize in the last quarter of 2022, reaching pre-pandemic levels of between $1,500 and $2,000 per container, remaining until March 2024.
Vanessa Bajaña, general manager of the International Cargo Unit of Grupo Torres & Torres. Photo: Courtesy of Grupo Torres & Torres.
How much import cargo do Ecuador’s ports handle annually? According to information from the Ministry of Transportation and Public Works, between January and December 2023, Ecuador’s maritime ports handled 1,283,956 TEUs of imports (twenty-foot equivalent units). So far in 2024, 28% of imports come from China.
How do these delays affect the logistics business in Ecuador? The main effects include an increase in logistics costs and customs duty payments, which impacts the sale price of the product and causes delays in delivering goods to the final customer. These delays can lead to breaches of contracts due to missed delivery commitments.
For the country’s ports, there is port congestion, with ships arriving at unscheduled times and unloading at other nearby ports in the country or even at ports in neighboring countries like Callao in Peru and Cartagena in Colombia, thus increasing times and costs.
Additionally, business is lost due to failures in delivering goods, import product prices increase during the high season of Christmas festivities, and shortages of certain products are generated.
What are the expectations for 2025? It is expected that by 2025 the international port situation on the Asia-Latin America route will stabilize, although this will depend on the proper functioning of the Panama Canal and the cessation of attacks on ships in the Suez Canal. A significant opportunity for Latin America, including Ecuador, will be the opening of the port of Chancay in Peru, which will allow direct traffic between China and the region, reducing transit time by 10 days and achieving significant savings in logistics costs.
What strategies can the import sector apply in the meantime?
- Advance planning: Place orders from foreign suppliers 30 days earlier than usual.
- Contingency plan: Maintain a safety inventory with a 30-day stock coverage, according to the supply plan.
- Contract review: Include clauses that contemplate unforeseeable logistical factors to avoid economic penalties.
- Supplier diversification: Search for new suppliers in international markets with less logistical impact as a viable alternative.
