shipping costs

World economy recovery threatened by high shipping costs

457 views

Surging shipping costs could increase global import price levels by 11% and consumer price levels by 1.5% between now and 2023, according to a new report from the United Nations Conference on Trade and Development (UNCTAD) published on Thursday (Nov.18)

The rate for a single shipping container has skyrocketed over the last 18 months while routes have seen costs rise by seven times, if not more. For example, the Shanghai Containerized Freight Index (SCFI) spot rate on the Shanghai-Europe route was less than $1,000 per TEU in June 2020, jumped to about $4,000 per TEU by the end of 2020, and rose to $7,395 by the end of July 2021.

“The current surge in freight rates will have a profound impact on trade and undermine socioeconomic recovery, especially in developing countries, until maritime shipping operations return to normal,” said UNCTAD Secretary General Rebeca Grynspan.

The impact of the high freight charges will be greater in small island developing states (SIDS), which could see import prices increase by 24% and consumer prices by 7.5%. In least developed countries (LDCs), consumer price levels could increase by 2.2%, according to the report.

In addition, concerns abound that the sustained higher shipping costs will not only weigh on exports and imports but could also undermine a recovery in global manufacturing, UNCTAD warned.

A surge in container freight rates will add to production costs, which can raise consumer prices and slow national economies, particularly in SIDS and LDCs, where consumption and production highly depend on trade.

global consumer prices
(Source: UNCTAD)

By product, the high rates will impact on low-value-added items such as furniture, textiles, clothing and leather products, whose production is often fragmented across low-wage economies well away from major consumer markets; the UNCTAD predicts consumer price increases of 10.2% on these.

The analysis further predicts a 9.4% increase in rubber and plastic products, a 7.5% increase for pharmaceutical products and electrical equipment, 6.9% for motor vehicles and 6.4% for machinery and equipment.

By country, it is suggested that prices would rise by 1.2% in the United States and 1.4% in China.
The analysis found that the impact of the high freight rates will be generally greater in smaller economies.

Manufacturers in the United States rely mainly on industrial supplies from China and other East Asian economies, so continued cost pressures, disruption and delays in containerized shipping will hinder production, according to the report.

A 10% increase in container freight rates, together with supply chain disruptions, is expected to decrease industrial production-a major driver of growth- in the United States and the euro area by more than 1%, while in China production is expected to decrease by 0.2%.

UNCTAD emphasizes that transport costs are also influenced by structural factors, including port
infrastructure quality, the trade facilitation environment and shipping connectivity, and there is potential for significant improvements.

As of late October, more than 600 container ships were stuck outside ports worldwide, twice the level at the start of the year, Swiss logistics giant Kuehne+Nagel told CNBC.

Why? Do all ports worldwide have problems?