Another danger for inflation watchers to navigate, Retail News, ET Retail


LONDON: Much like the coronavirus pandemic and the economic disruption it caused, a global shipping crisis is expected to continue to delay freight traffic and fuel inflation until 2023.

Shipping rarely figures in economists’ inflation and GDP calculations, and businesses tend to be more concerned with raw materials and labor costs than transportation. But that could change.

The cost of shipping a 40-foot container unit (FEU) has fallen by about 15% from the record highs of over $ 11,000 reached in September, according to the Freightos FBX Index. But before the pandemic, the same container cost only $ 1,300.

With 90% of world goods shipped by sea, it risks exacerbating global inflation which is already proving more troublesome than anticipated.

Peter Sand, chief analyst at the freight rate benchmarking platform Xeneta, doesn’t expect container shipping costs to normalize until 2023.

“This means that the higher cost of logistics is not a transitory phenomenon,” Sand said. “For inflation, that means problems… The element of shipping, in overall prices, no matter how small, is much more important than ever, and it could be a permanent price increase in the future. . “

Shipping costs first jumped after a six-day blockade of the Suez Canal in March, which caused arrears around the world. This has tightened an already tight vessel rental market as uncertainty over future fuel and emissions regulations drove orders for new vessels to record highs.

Then came an increase in consumer demand for goods in coronavirus lockdowns, as shipyards grappled with COVID-related labor shortages.

In early November, 11% of the global volume of loaded containers was stuck in traffic jams, down from the peaks in August but well above the 7% before the pandemic, analysts at Berenberg believe.

At the end of October, in Los Angeles / Long Beach, one of the largest container ports in the world, ships took twice as long to turn around than before the pandemic, estimates RBC Capital Markets.

While the worst may be over, RBC analyst Michael Tran doesn’t expect freight prices to return to pre-pandemic levels for a few years.

Even if plans to unload an additional 3,500 containers each week are implemented, the Los Angeles / Long Beach backlog is unlikely to end before 2023, he said.

“The drop in prices we saw at the end of September is a false dawn. What we are seeing from a big data perspective is that things are not improving noticeably.”

A United Nations report said last month that high freight rates threatened the global recovery, suggesting they could raise world import prices by 11% and consumer prices by 1.5%. by 2023.

The impact also reverberates; a 10% increase in containerized freight rates reduced US and European industrial production by more than 1%.

The report notes that the prices of cheaper products will increase proportionately more than the more expensive ones, and that poor countries producing low-value-added items such as furniture and textiles will be the most affected by competitiveness.

The retail price of a low-end refrigerator will rise 24% versus 6.5% for a more expensive brand, said Ben May, head of macro research at Oxford Economics, adding: It’s not worth it worth it. “

The shipping boom is expected to subside as the economic reopening has allowed people to spend on travel and dining out rather than on clothes or appliances. But that theory is called into question by the new COVID variants and the huge pandemic time savings that customers could funnel into even more products.

In the final season of earnings, toy maker Hasbro, retailer Dollar Tree and consumer goods giant Nestle were among companies bemoaning transportation costs – and reporting price increases.

With the inventory-to-sales ratio in the United States nearing its all-time low, companies will also need to restock. “This will support demand for goods in the first half of next year,” Unicredit analysts said.

The problem could worsen if small businesses are unable to meet their business obligations and struggle to stay afloat, said James Gellert, CEO of analytics firm RapidRatings:

“These time bombs are riddled with the supply chains of large companies and will pose many problems for their customers who depend on their goods and services.”

Real relief can only come when more ships appear.

Orders for ships have increased significantly this year. But it takes three years to build and deliver one, and it will take until 2024 before a significant new tonnage is launched, predicted ING senior economist Rico Luman.


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