Some time ago, when I lived in the center of Berlin, I used to visit the farmers' market to buy fresh fruit and vegetables every week. A greengrocer advertised his wares there with the words, "Cheap today, expensive tomorrow!" It would almost be desirable if we PV wholesalers could offer our modules with a similar slogan. Unfortunately, no one in the industry can currently claim that solar modules are cheap - quite the opposite. Following a brief respite, prices have climbed again in recent weeks. Since the previous low in September 2020, prices for new, grade-A goods have already risen by an average of 20% to a level not seen since April 2019.
There is no end in sight to the surge in prices for PV modules. Indeed, the trend could continue through the end of the year, depending on global market events and how the pandemic develops. The presumed culprit has merely been unmasked, which I will discuss in a moment. The consequence of this revelation will be that stakeholders either postpone the construction of their planned PV projects indefinitely or - like the customers of the vegetable hawker quoted above - will secure the coveted commodity sooner rather than later and avoid having to dig even deeper into their pockets. Price differences for comparable module brands and technologies are actually only a function of whether the products have been stored in Europe, and since when, or whether they still have to be shipped across the ocean from Asia. For once, products available on the spot market at short notice are cheaper than products to order, which are yet to be produced and shipped - a world turned upside down! But what has gone awry here, making longer-term supply contracts no longer the sensible option and planning security just a pipe dream of the good old days?
It all started when the international movement of goods gradually went off track after the onset of the Covid-19 pandemic. First, individual plants came to a standstill, preventing urgently needed goods from entering circulation. Container ships could not be utilized to capacity, and deliveries were initially delayed. By the time production resumed, at least in China, the virus had already reached the shipment hubs. Freight forwarders, ports and customs authorities could only operate at a much-diminished capacity, if at all. Employees were absent due to illness, seamen and dockworkers often had to go into quarantine, and the movement of goods could not flow freely either on land or on water. There were times when important overseas ports had to be closed and cordoned off for days on end. Due to these uncertainties, existing capacities at the shipping companies were gradually reduced so as not to leave shippers with unused capacities and spiraling costs.
Once uncertainty about the course of the pandemic had subsided somewhat in early 2021 and many people had come to terms with the virus and their financial situations, the chaos in the global flow of goods really kicked in. As a result of lockdowns and working from home, there was a growing need to make home improvements and a more sustainable lifestyle. After a lull that lasted several months, consumption suddenly went crazy, at least in the industrialized countries, and the solar industry was no exception. Many stakeholders in Germany can report a very successful and lucrative first half of the year. But shipping companies and freight forwarders had scaled back their capacities and were simply not prepared for such a rapid increase in the volume of goods. In addition, many service providers and government agencies were still not operating at normal capacity. Within a very short period, the demand for transport far outstripped supply. Cargo ships were backed up outside the ports; containers were not in the right place at the right time. As a result, turnaround times in the international flow of goods also increased by 20 to 30% compared to pre-pandemic levels.
The bottom line is that there are still too many goods waiting on too few ships worldwide, and logistics chains are not functioning as they should. As a result, freight rates have exploded since last fall. The scarce commodity is being sold at a premium, and shipping companies are overcompensating for the rise in costs, apparently making a tidy profit, which is driving prices even higher. Whereas a container of sea freight from China to Rotterdam cost roughly $1,500 to $2,000 before the pandemic, prices have now skyrocketed to $15,000 to $18,000. This means that every Asian solar module destined for use here in Europe is considerably more expensive. In terms of module capacity, the freight component has increased tenfold from the previous level of around €0.004-€0.006/W, up to €0.05-€0.06/W. Transport costs thus no longer account for just 2% of the total price, but up to 20%!
The Chinese module manufacturers were quick to realize that such expensive products no longer sell well in Europe. In some cases, delivery quantities are being dialed back, and in other cases deadlines are being delayed until a reasonably affordable carrier can be found. The latest trick, however, is the attempt to pass on the freight risk for future deliveries to the buyer. Goods are no longer offered with the standard CIF/FCA Rotterdam or DDP Incoterms, delivery-inclusive to the building site or warehouse, but instead EXW or FOB - that is, ex-works or free on board of the containership. This means that price increases for transport are fully borne by the customer, making it difficult or impossible to calculate the purchase price reliably or set a binding delivery date. The concern is that few end customers will accept this uncertainty in project implementation - the risk is entirely on the part of the builder. For this reason, I would strongly advise against accepting such contractual terms, at least as long as the situation in international freight traffic is so unpredictable.
High transport costs are not only reflected in the direct purchase of goods, but along the entire value chain. Steadily rising prices for raw materials and semi-finished goods are eroding the margins of manufacturers and retailers. When these costs are passed on to consumers, they fuel inflation. This is a vicious cycle that we can probably only break by increasing local value creation and reducing international freight traffic. Yet trying to find locally produced products in the PV industry is an exercise in futility - the few products available will never be able to meet the increasing demand in the foreseeable future. Whether the upward price spiral will then necessarily lead to an imminent market collapse is unfortunately a matter of concern!
Overview of the price points by technology in August 2021 including the changes over the previous month (as of August 16, 2021):