Soaring freight costs hit LatAm polymers trade

Latin American plastic product manufacturers have been facing a significant surge in freight costs from Asia to the Americas since early April, with prices exceeding $10,000 per 40-foot container (FEU) heading into June, compared with approximately $1,170/FEU at the end of March.

This high value was reported to Argus by polymer traders in the Manaus Free Trade Zone last week. It is the highest rate reported by market participants in the region. But data collected by Argus shows that average freight rates from Asia to the east coast of South America were between $6,800-$8,000/FEU on 31 May. In the two following weeks, prices hit $8,000-8,500/FEU.

The phenomenon is connected to a logistics readjustment following disruptions on major global shipping routes since last year. But the current situation also has a unique cause: electric vehicles imports from China to Latin America.

Chinese electric car manufacturers have been taking advantage of available space on vessels traveling the Asia-South America route before an increase in import tariffs on these vehicles. In Brazil, import duties are set to rise in July for all types of electrified vehicles, from 10pc to 18pc for fully electrified cars, from 12pc to 20pc for hybrid cars, and up to 25pc for non-rechargeable hybrid vehicles.

This window of opportunity exploited by Chinese manufacturers has overloaded ships on the China-Brazil route, both for cars and containers filled with spare parts and components. Importers of other materials, such as polyethylene (PE) and polypropylene (PP), have been significantly affected. In the case of PP, some importers have stopped importing this resin from China and other Asian countries due to the substantial increase in freight costs.

As a result, PP buyers in Brazil and the rest of South America are meeting their needs with material sourced from the Middle East (in Brazil's case) and the US (for countries on the west coast of South America), or from regional producers like Braskem in Brazil, Esenttía in Colombia, Petrocuyo in Argentina, and to a lesser extent, Petroquim in Chile.

Logistical Disruptions

The current higher maritime freight rates between Asia and South America follow logistical disruptions in two of the world's most important navigation channels, the Panama Canal and the Suez Canal.

The Panama Canal faced challenges last year due to severe drought, resulting in a decrease in authorized vessel crossings between the Atlantic and Pacific oceans. The usual 30 transits dropped to around 18 in February.

While the situation in the Panama Canal is gradually improving, it has had consequences for commercial flows between polymer producers in Asia and consumers on the east coast of South America, namely Brazil and Argentina. Similarly, disruptions occurred between European producers and consumers on the west coast of South America, like Colombia, Peru, Ecuador and Chile.

Another critical maritime trade corridor, the Suez Canal, which connects the Mediterranean Sea to the Red Sea, continues to be impacted by armed actions from military groups. As a result, shipping companies have increasingly preferred the longer route around Africa's Cape of Good Hope, despite the longer distances and significantly elevated freight costs.

By Frederico Fernandes