Container freight rates increase out of control, the price scenario for all items increases

The skyrocketing freight rates around the world will hit your wallet sooner than you think. From the cup of coffee you drink every morning to the children's toys, all will increase in price.

Container freight rates increase out of control, preparing for a scenario where prices of all goods skyrocket

Container freight rates increase out of control, preparing for a scenario where prices of all goods skyrocket

According to data from Drewry Shipping, the cost to ship a 40-foot container by sea from Shanghai to Rotterdam has now hit a record high of $10,522 – a 547% increase from the recent five-year average. .

Since 80% of the world's goods are shipped by sea, rising freight rates threaten to drive up prices for everything from children's toys to furniture to auto parts to things. as small as coffee, sugar. This makes the fear of inflation even more increasing in the context that inflation pressure is still coming from many sides.

"In my 40 years in toy retail, I've never seen prices so intense," said Gary Grant, founder and chairman of UK toy chain The Entertainer. He had to stop importing large teddy bears from China because it would have to double the retail price to cover the shipping costs.

Container freight rates skyrocketed. Source: Bloomberg

Container freight rates skyrocketed. Source: Bloomberg

The market is currently facing a series of stressors: surging demand, container shortages, congested ports, and a shortage of ships and workers at ports.

As a result, all roads are under great pressure. Recently, the disease broke out in some Asian export hubs such as in some Chinese ports, making the situation worse.

Long distances have been hardest hit, for example shipping costs from Shanghai to Rotterdam are now 67% higher than to the US West Coast.

In the past, transportation costs were often considered to have little impact on inflation because they were only a small part of total costs. Now, however, economists say more attention should be paid to this factor. HSBC estimates that a 205% increase in container freight rates will increase eurozone production costs by 2%.

Retailers are faced with three choices: suspend imports, raise prices, or absorb costs themselves so that the burden can be passed on to consumers later. Ultimately, all three options will lead to higher prices, according to Jordi Espin, an expert with the Council of Sea Transporters in Europe, which represents about 100,000 retailers, wholesalers and manufacturers. . Currently, part of the cost burden has been passed on to consumers, he said.

Production costs in Europe increased sharply.

Production costs in Europe increased sharply.

Recently, Europe has stopped importing anchovies from Peru because the cost is too high and the price is no longer competitive with domestic sources. Similarly, European olive growers have stopped exporting to the US market.

Meanwhile, supply chain bottlenecks and rising costs greatly affect the export of the Arabica beans that Starbucks loves, as well as the robusta beans from Asia that are often used to make instant coffee. .

More affected are companies that produce bulky but low-value items such as toys and furniture. For some manufacturers of low-cost furniture, freight now accounts for 62 percent of total retail prices, according to Alan Murphy, CEO of Copenhagen-based consulting firm Sea-Intelligence.

Companies are still doing their best to get through this difficult period. Some stopped exporting to certain markets while some tried to source goods or materials closer to them to cut costs. The longer the situation lasts, the more companies will have to restructure and shorten the supply chain.

So far, central banks have downplayed the global rise in freight rates, arguing that price gains stemming from supply chain bottlenecks will soon fade, though it could last until the end of the year. In addition, companies often sign annual contracts with shipping lines, so the actual freight rates can be much lower than the spot prices that the press headlines.

However, analysts warn that the risk of inflation should not be underestimated. "Even if the magnitude is smaller than estimated, the inflationary wave has been accumulating for more than a year and will therefore have certain effects. There is a risk that we are underestimating the effects of the effects. with reality," said Professor Volker Wieland of Goethe University (Frankfurt, Germany).

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