Friday 10th December 2021
How much are the prices rising?
High freight costs give inflation even more impetus
Around 90 percent of the world’s goods are shipped by sea and each individual container costs eight to ten times as much as before the pandemic. Sooner or later, importers and companies will pass these prices on to consumers.
In the past, economists paid less attention to shipping and the costs of transporting goods around the world. For their inflation and GDP calculations, raw material and labor costs were sufficient for orientation. However, at the end of the second year of the pandemic and a number of problems in container shipping later, that should change.
Since 90 percent of the world’s goods continue to be shipped by sea and the supply chains are still tense, experts predict that the significantly higher freight costs will soon affect consumer prices worldwide. Global inflation is likely to worsen as a result.
It would be an additional price hike at an already high level. Significantly more expensive refueling and heating drove the German inflation rate to its highest level in almost three decades in November. Goods and services cost 5.2 percent more than a year earlier. The last time there was a higher inflation rate was in June 1992 in the wake of the reunification boom.
There is also a threat of adversity from the US on the inflation side: Here, experts assume that the expected figures for US price increases in November will be 6.8 percent compared to the same period in the previous year. That would be the highest level since 1982.
No quick improvement in sight
According to industry experts, importers have not yet passed the significantly higher transport costs on to their customers in full. However, surveys have shown that retailers plan to raise their prices.
The pressure due to lower margins is high, which is felt above all by importers of cheap goods from Asia. According to the Freightos FBX Index, the cost of shipping a 40-foot container (FEU) unit is down about 15 percent from the record highs in September of over $ 11,000. But before the pandemic, the same container was only $ 1,300. In macroeconomic terms, a point has been reached where companies and even “entire industries are considering whether shipping across the globe still makes sense,” says logistics expert Alexander Nowroth from Lebenswerk Consulting Group ntv.de.
A quick normalization of container transport costs does not seem to be in sight. At the beginning of November, according to an analysis by Berenberg Bank, 11 percent of the world’s loaded container volume was still in traffic jams. Although this is less than in August, it is still significantly more than the 7 percent that backed up before the pandemic.
UN: Threat to Global Recovery
Logistics expert Nowroth predicts that container rates “will definitely remain at a very high level in the coming year”. The chief analyst of the freight rate benchmarking platform Xeneta, Peter Sand, does not see any easing of the situation before 2023. “That means trouble for inflation,” he concluded. “The share of shipping in total prices – however small it may be – is greater than ever and could increase prices permanently in the future,” Reuters quoted him as saying.
The United Nations warned of a threat to global recovery back in November. According to their forecasts, the high freight rates could increase global import prices by 11 percent and consumer prices by 1.5 percent by 2023.