In a similar way to the Coronavirus outbreak and the economic problems that it caused, a global shipping crisis is expected to have an adverse impact on global trade and prices well beyond 2023.


Shipping is rarely accounted for in economists' inflation and GDP calculations, and companies focus more on raw materials and labour costs than transportation. But that might be changing.

A 40-foot container (FEU) unit has fallen 15% in cost from record highs over $11000 hit in September, according to the Freightos FBX index. It cost just $1300 before the pandemic.

90% of the world's merchandise is shipped by sea, which is making global inflation worse than anticipated.

Peter Sand, chief analyst at the freight rate benchmarking platform Xeneta, believes container shipping costs will not normalize before the year 2023.

Sand said the higher cost of logistics is not a temporary phenomenon. Shipping still makes up the biggest chunk of overall prices, as small as it may be, meaning prices will rise permanently as a result.

A six-day blockage of the Suez Canal in March caused worldwide backlogs and increased ocean transport costs. With sales of new ships at record lows due to uncertainty about future fuel and emissions regulations, this tightened the already strained vessel-hiring market even further.

After that, consumers went on a buying spree during Coronavirus lockouts, while dockyards were challenged due to COVID-related labour shortages.


In early November, Berenberg analysts estimate that 11% of world's loaded containers were blocked, down from August peaks, but still above pre-pandemic 7% figures.

BACKLOG UNTIL 2023

During the pandemic in October, Los Angeles/Long Beach, one of the world's busiest container ports, took twice as long to turn ships around than before.

RBC analyst Michael Tran says freight prices will not return to pre-pandemic levels for at least another two years, even after the worst may have passed.

He said even if plans to unload an additional 3500 containers each week are enacted, the Los Angeles / Long Beach backlog is not likely to be resolved by 2023.

We saw a softening in prices at the end of September, but it was a false dawn. In the big-data world, things do not appear to be getting any better. (Graphic: Shipping rates,

In a recent UN report, high freight rates were said to be threatening global recovery, positing that they could raise global import prices by 11% and consumer prices by 15% between now and 2023.

In addition, container freight rates are rising by 10%, and this cuts U.S. and European industrial production by more than 1%.

NOT WORTH IT

As noted in the report, cheaper goods will be hit more severely by price increases than dearer ones, and that a poor nation's competitiveness will be most adversely affected by its production of furniture and textiles with low value-added.

According to Ben May, head of macro research at Oxford Economics, the retail price of a low-end refrigerator will rise by 24 percent compared with 65 percent for a more expensive one. Manufacturing firms may stop shipping very cheap refrigerators, as the cost just isn't worth it.

As economic reopening enabled people to spend on travel and dining out rather than clothing or appliances, the shipping boom was expected to slow.

However, new COVID variants, as well as the enormous pandemic time savings customers could use for even more goods, are challenging that theory.

During the recent earnings season, Hasbro, Dollar Tree, and Nestle were among the companies blaming rising freight costs and raising prices.

Businesses will also need to restock with the inventory-sales ratio near record lows.

Unicredit analysts believe this trend will support goods demand in the first half of next year. (Graphic: Inventories,
According to James Gellert, CEO of analytics company RapidRatings, the situation could deteriorate if smaller companies cannot meet their commercial obligations.

Large enterprise supply chains are afflicted with these time bombs, presenting severe problems for the customers who rely on their goods and services.

https://topalpha.de/ Only when more vessels appear will real relief come.


Ship orders have risen significantly this year. But it takes three years to build and deliver one, and it won't happen until 2024 that much new tonnage is taken to the water, ING's Rico Luman forecast. (Graph: Ship orders surged this year.