Rising International Shipping Costs: Causes and Implications

International Shipping Costs Continue to Rise

Canadian Rail Lockout

A recent labor dispute in Canada briefly disrupted North American logistics, further tightening shipping capacities. On Thursday, union employees of Canadian railways were locked out, threatening to bring a significant portion of the region's supply chain to a halt.

Although the lockout lasted only 18 hours—thanks to an order by Canada's Minister of Labor initiating binding arbitration—the anticipation and brief disruption had cascading effects on shipping. In anticipation of the lockout, some shipments were diverted away from Vancouver, leading to increased congestion at terminals in Tacoma, Washington. This diversion created backlogs that, despite the short duration of the lockout, could take up to a week to clear. Such delays not only slow down logistics but also contribute to higher costs as carriers struggle to maintain schedules and manage increased demand in alternative routes.

Looming Threats in the U.S. and Their Impact on Prices

While the Canadian issue was swiftly resolved, the U.S. faces a potentially more significant disruption. The International Longshoremen's Association (ILA) port workers on the East Coast and Gulf Coast are nearing the end of their contract, with the possibility of a strike in October looming large. This has added urgency for businesses to ship goods from Asia sooner rather than later, further driving up shipping costs.

In response to the potential strike, spot rates for shipping to the U.S. East Coast have remained at their peak since mid-July, unlike rates to Northern Europe and the Mediterranean, which have eased slightly. Some shippers are pulling forward their transatlantic volumes, anticipating future disruptions, though rates on this lane have not yet increased significantly. However, if the strike occurs, these rates could soar as shippers scramble to find alternative routes, intensifying demand on the West Coast and straining the overall shipping capacity.

Domestic manufacturing has contracted yet again in July for the fourth consecutive month according the Manufacturing PMI which registered 46.8%. This is grave when the report is analyzed closely as New orders [47.4] (demand) and inventories [44.5] are contracting at a faster pace while pricing is currently rising sharply at 52.9. What this means is demand is dropping while pricing's rate of growth is increasing at a faster rate for the 7th consecutive month.

West Coast Shipping Costs

On the West Coast, rates that had eased by about 20% from their July peak have recently surged more than 10% due to mid-month General Rate Increases (GRIs) imposed by some carriers. While there is some skepticism about whether these increases will hold, any disruption on the East Coast could lead to further hikes as shippers reroute volumes to the West Coast.



Carriers have responded to fluctuating demand by adding capacity, but with peak season approaching, any additional strain could result in significant cost increases. The potential for a backlog at East Coast and Gulf ports, should a strike occur, could further exacerbate the situation, driving rates even higher as demand for West Coast routes spikes.

Global Labor Disputes and Weather Disruptions

The impact of labor disputes is not limited to North America. In India, a major port worker union representing 20,000 members narrowly avoided a strike this week, reaching a last-minute agreement with port operators. A strike could have paralyzed the country’s twelve largest ports, creating significant backlogs just as operations were starting to stabilize. Similarly, in Bangladesh, logistics operations are once again under pressure as devastating floods have disrupted road transport, particularly affecting the flow of containers to and from the critical port of Chittagong.

Air Cargo Constraints

Air cargo, often seen as a faster alternative to ocean shipping, is also facing challenges. The U.S. Customs and Border Protection is reportedly tightening its scrutiny of customs brokers and may impose stricter reporting requirements for imports via the de minimis exception. This is particularly aimed at regulating the surge of e-commerce shipments from China, most of which arrive by air.

Despite these regulatory hurdles, e-commerce shipments are expected to remain a key driver of air cargo demand, especially as the year-end peak season approaches. Air freight rates, which are already elevated due to tight space, could climb even higher as demand picks up.

Even during the typically slow summer season for air cargo, e-commerce volumes have kept space tight and rates elevated. Freightos Air Index rates from China were above $6.00/kg to North America last week and around $3.50/kg to Europe. With rates already high, there are expectations for even higher prices and tighter capacity as demand picks up later in the year.

Ocean Pricing Update

Ocean freight rates continue to reflect these broader trends. The Freightos Baltic Index (FBX) reported the following changes in prices:

As the year progresses, shippers and logistics providers will face increasing challenges in managing costs and ensuring timely deliveries. If you’re a shipper, consider partnering with TLI. We specialize in helping shippers navigate these complexities, ensuring your freight arrives within budget.