Rising freight rates around the world may hit your pocket sooner than you think, from the cup of coffee you get every morning to the toys you’ve been thinking of buying for your kids.
Moving a 40-foot shipping container by sea from Shanghai to Rotterdam now costs a record $10,522, 547% more than the seasonal average over the past five years, according to Drewry Shipping.
With more than 80% of all merchandise trade transported by sea, sharp increases in shipping costs threaten to drive up the prices of everything from toys, furniture and auto parts to coffee and sugar, according to a report published by Bloomberg on Sunday. Concerns in global markets that are already preparing to accelerate inflation.
“In my 40 years in toy retail, I have never known such tough conditions from a pricing standpoint,” says Gary Grant, founder and chief executive of a toy store in Britain. I had to stop importing giant teddy bears from China, because their retail price had to double to add higher shipping costs. “Will this have an effect on retail prices? My answer should be yes.”
A combination of factors, chief among them growing demand, a shortage of containers, saturated ports, and a lack of ships and dock workers, have put pressure on the transport capacity of each shipping route, and the recent outbreak of the COVID-19 virus in Asian export hubs such as China has exacerbated matters.
The toughest conditions are faced by the longest routes, making shipping from Shanghai to Rotterdam 67% more expensive than shipping to the US West Coast, for example.
Moving a 40-foot shipping container by sea from Shanghai to Rotterdam now costs a record $10,522, 547% higher than the seasonal average.
In the past, freight rates were ignored for their negligible effect on the total expenditure of goods, but now higher freight costs are forcing some economists to give them more attention as a source of inflation.
Although it is still seen as a relatively minor input, HSBC Holdings Plc estimates that a 205% increase in container shipping costs over the past year could push up producer prices in the eurozone. by up to 2%.
“At the retail level, sellers are faced with three options: stop trading, raise prices or absorb,” said Jordi Espen, director of strategic relations at the European Shippers’ Council, which represents about 100,000 retailers, wholesalers and manufacturers. The cost to pass on later, and all of that would actually mean more expensive goods,” he said, “and those costs have already been passed on to consumers.”
Aspen adds, exporters’ prices are rising in other ways as well. For example, the import of anchovies from Peru to Europe has largely stopped because with shipping costs rising, they are uncompetitive compared to what is available locally. He also said European olive growers They are no longer able to export to the United States.
Meanwhile, shipping and cost bottlenecks are hurting the transportation of Arabica coffee, which Starbucks favors, and the robusta beans used to make instant coffee, which is sourced largely from Asia.
Few industry watchers expect container prices to fall much any time soon, such as Lars Jensen, who confirmed last week that “it doesn’t look like a drop is imminent”.
Some companies are trying to cope with the high costs, as some stop exporting to certain locations while others search for goods or raw materials from nearby locations
While the figures confirm that the cost of containers has risen, which increases the risk of higher retail prices, the net profit of the French shipping company (CMA CGM SA) rose to $ 2.1 billion in the first quarter, compared to $ 48 million in the same period last year.
The French company recently indicated that it expects “continuous demand for transport of consumer goods throughout the year.”
Shipping costs are even more painful for companies that move traditional, low-value items such as toys and furniture.
For some lower-value furniture makers, shipping now makes up about 62% of retail value, according to Alan Murphy, CEO of Copenhagen-based consultancy Sea Intelligence.
“Some companies are desperately trying to beat the high costs, with some stopping exporting to certain locations, while others are looking for goods or raw materials from nearby locations,” says Philip Damas, founder of Drewry Supply Chain Advisors.
“The longer these peak freight rates persist, the more companies will take structural measures to shorten their supply chains,” Damas added. Few firms can absorb a 15% increase in total deliverable costs for internationally traded products.
In Europe, producer prices in the Eurozone accelerated sharply, despite the optimism of Western central bankers, as it will lead to a rise in inflation to the desired level and then things will return to normal with the passage of time.
But despite all this, why do global concerns seem less than the stated danger?
There are several reasons for this, as shipping costs still make up only a small part of the final price of the manufactured good, reaching, according to experts, only about 1%.
Furthermore, companies have annual contracts with container lines, so the prices that are secured are much lower than the spot prices that are making headlines.
With the end of the shutdowns, consumer demand will likely shift to services from goods, but “the risk of course is that freight costs will continue to rise.”
But Volker Wieland, professor of economics at Goethe University in Frankfurt and a member of the German government’s Council of Economic Advisers, cautions that shipping costs may not be sufficiently taken into account.
“Even if it is an order of magnitude smaller than estimated, the dynamic builds up over a year and has significant effects. This means there is a risk but we underestimate the effect,” he said.
