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Estudios Técnicos: ‘Drastic increase in freight rates should force rethinking’

The dramatic increase in international maritime freight rates, which was triggered by the COVID-19 pandemic, should force a rethinking of cabotage laws and the issue of food self-sufficiency in Puerto Rico.

That is the assessment presented by Economist José Joaquín Villamil, CEO of Estudios Técnicos Inc., in the firm’s publication, “ETI Trends.”

“Since the onset of the COVID-19 pandemic, maritime cargo freight rates have increased dramatically. For example, from Asia to the United States they have increased by 1065% and from Europe to the United States by 238% between March 2020 and August 2021,” according to the analysis.

“However, in Puerto Rico, this excessive increase has not had the impact that it has had in other places. The freights charged by companies that bring maritime cargo from the United States to Puerto Rico, which operate under the Jones Act [cabotage], have not increased and their service has not undergone substantial changes,” the publication states.

ETI Trends noted that Puerto Rico did experience an impact from increases in cargo arriving from other destinations, mostly from Europe and China, though these represent a small proportion of the total cargo that reaches Puerto Rico.

The cost of shipping a 40-foot container from Asia to the United States has risen from $1,502 to $17,507 since the onset of the pandemic in 2019. From Europe, the cost increased from $1,754 to $5,929.

These increases, particularly in shipments from China, impacted local prices, the firm concluded.

Puerto Rico has direct imports from China of about $1 billion, but it also has imports from China that arrive through the United States. The prices of products that ship to the island directly or indirectly from China have increased as a result.

As for the reasons behind the increase in ocean freight rates, analysts have cited many possible causes, including a shortage of containers, limits on ship capacity, the skyrocketing demand for products from China, problems with supply chains and the restrictions imposed by the pandemic that have affected cargo handling.

The ETI Trends publication stated that there’s no relief in sight in the short-term for these increases. International container shipping rates are expected to remain at high levels in 2022.

A recent forecast from Moody’s estimated that they will remain at record levels for the remainder of 2021 and through 2022, “as demand significantly exceeds capacity.”

“What implications does this situation have for Puerto Rico? At the very least, it should stimulate us to think of ways to become more self-sufficient in various products, particularly food. It is evident that it is not possible to achieve total food self-sufficiency, but it is possible to reduce dependence on different products from the exterior, both food and others,” said Villamil.

He also explained that this increase in maritime freight rates forces Puerto Rico to also rethink assumptions that have been present in the discussion on the issue of cabotage on the operation of the international maritime cargo system.

“It is not a particularly stable or competitive industry and that has been reflected in what has happened in the last year,” Villamil said.

The economist said that although the situation with the maritime freight rates has had some repercussions on our consumers, it is no less true that it has raised a flag regarding the risk that an economy like ours runs due to changes in the global context.

“We need this risk element to always be considered in our economic policies, not just the risk of natural events. The reality is that this has not been the case. Traditionally, we have acted without incorporating risk and without taking the necessary measures to manage it,” he said.

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This story was written by our staff based on a press release.

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