LONDON- Much like the coronavirus pandemic, and the economic disruption that it has caused, a global shipping crisis looks set to go on delaying goods traffic and fuelling inflation well into 2023.
Shipping rarely figures in economists’ inflation and GDP calculations, and companies tend to fret more about raw materials and labor costs than transportation. But that might be changing.
The cost of shipping a 40-foot container (FEU) unit has eased some 15 percent from record highs above $11,000 touched in September, according to the Freightos FBX index. But before the pandemic, the same container cost just $1,300.
With 90 percent of the world’s merchandise shipped by sea, it risks exacerbating global inflation that is already proving more troublesome than anticipated.
Peter Sand, chief analyst at the freight rate benchmarking platform Xeneta, does not expect container shipping costs to normalize before 2023.
“This means the higher cost of logistics is not a transitory phenomenon,” Sand said. “For inflation, that means trouble … The element of shipping, in overall prices, small as it may be, is much bigger than ever before, and it could be a permanent lift to prices going forward.”
Ocean transport costs initially leapt after a six-day blockage of the Suez Canal in March caused backlogs worldwide. That tightened an already strained vessel-hiring market as uncertainty about future fuel and emissions regulation had driven orders for new ships to record lows.
Then came a surge in demand for goods from consumers in coronavirus lockdowns, while dockyards were struggling with COVID-related labour shortages.
In early November, 11 percent of the world’s loaded container volume was being held up in logjams, down from August peaks but well above the pre-pandemic 7 percent, Berenberg analysts estimate.
In late October at Los Angeles/Long Beach, one of the world’s biggest container ports, ships were taking twice as long to turn around as before the pandemic, RBC Capital Markets estimates.
Although the worst may be past, RBC analyst Michael Tran does not see freight prices returning to pre-pandemic levels for another couple of years.
Even if plans to unload an extra 3,500 containers each week are implemented, the Los Angeles/Long Beach backlog is unlikely to clear before 2023, he said.
“The softening in prices we saw at the end of September is a false dawn. What we see from a big-data perspective is that things are not getting materially better.”
Shipping rates
A United Nations report said last month that high freight rates were threatening the global recovery, suggesting they could boost global import prices by 11 percent and consumer prices by 1.5 percent between now and 2023. read more
The impact also ripples out; a 10 percent rise in container freight rates cuts US and European industrial production by more than 1 percent.
