• The San Juan Daily Star

Analysis: Rising sea cargo rates should prompt review of cabotage laws

The increase in maritime shipping rates for international cargo, triggered by the COVID-19 pandemic, should force a rethinking of Puerto Rico’s cabotage laws and lack of food self-sufficiency, according to a recent analysis.

By The Star Staff

The increase in maritime shipping rates for international cargo, triggered by the COVID-19 pandemic, should force a rethinking of Puerto Rico’s cabotage laws and the lack of food self-sufficiency.

José Joaquín Villamil, founder and CEO of Estudios Técnicos Inc., a local economic research and technical firm, made those remarks in an analysis published by the firm in its ETI Trends journal.

“Since the start of the pandemic, shipping costs for maritime cargo have increased dramatically. For example, from Asia to the United States they have increased by 1,065% and from Europe to the United States by 238% in the period between March 2020 and August 2021,” he said.

In Puerto Rico, this excessive increase has not had the impact that it has had in other places. The freight rates charged by the companies that bring maritime cargo from the United States to Puerto Rico, and that operate under the Jones Act (cabotage), have practically not increased and their service has not undergone material changes, states the ETI Trends analysis.

ETI Trends noted, however, that Puerto Rico has been impacted by increases in shipping rates for cargo that comes from international destinations, mostly from Europe and China. But this is a small portion of the total cargo arriving in 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 beginning of the pandemic. The cost of shipping a 40-foot container from Europe increased to $5,929 from $1,754.

These increases, particularly in shipments from China, impacted local prices. Puerto Rico has direct imports from China of about $1 billion, but it also has imports from China that come through the United States.

The prices of products that come to the island directly or indirectly from China have risen as a consequence.

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

ETI Trends indicated that there is no relief from this hike short term. International container shipping rates are expected to remain high in 2022. A recent Moody’s forecast estimated that they will remain at record levels for the remainder of 2021 and through 2022, “as demand significantly exceeds capacity,” ETI said.

“What are the implications 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,” Villamil said. “It is evident that it is not possible to achieve total food self-sufficiency, but it is possible to reduce dependence on the outside in different products, both food and others.”

He said further that the increase in maritime freight rates should force a rethinking of the assumptions that have been present in the discussion on the issue of cabotage, in particular on the operation of the international maritime cargo system. The industry is not a particularly stable or competitive one, and that has been reflected in what has happened over the last year, he said.

Villamil said that although the situation with the cost of maritime cargo has had some repercussions on consumers, it is no less true that it has raised a flag regarding the risk to an economy like that of Puerto Rico. He said such a risk should always be considered.

“This element of risk should always be present in our economic analysis and not only in terms of the risk of natural events,” Villamil said. “The reality is that this has not been the case. Traditionally we have acted without incorporating the risk and without taking the necessary measures for its management.”

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