Similar to the Coronavirus pandemic and the economic disruption it caused, the global shipping crisis is set to continue delaying goods traffic and fueling inflation well into 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.

According to Freightos' FBX index, the cost of shipping a 40-foot container (FEU) unit has declined by 15% since its September peak above $11000. Prior to the pandemic, the same container cost just $1300 instead.

It increases the risk of global inflation, which has already proved more troublesome than anticipated with 90% of the world's merchandise traveling by sea.

In 2023, Peter Sand, chief analyst at freight rate benchmarking platform Xeneta, does not expect container shipping costs to normalize.

This means logistics costs are not a transitory phenomenon, Sand explained. This could mean trouble for inflation because the shipper's share of overall prices in the future will be much larger than ever before.

After a Suez Canal blockade in March caused delays throughout the world, ocean transport costs initially rose. With uncertainty over future fuel and emission regulations, there was already a strained vessel-hiring market, causing new ship orders to hit record lows.

During coronavirus lockdowns, consumers surged in demand for goods, while dockyards struggled with labour shortages due to the virus.

According to Berenberg analysts, in early November, 11% of world's loaded container volume was caught in logjams. Though down from August peaks, however, it was still higher than the pre-pandemic 7%.

BACKLOG UNTIL 2023

The turning times of ships in Los Angeles / Long Beach, one of the world's largest container ports, were twice as long as they were before the pandemic began, RBC Capital Markets estimates.

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.

The Los Angeles / Long Beach backlog cannot be cleared before 2023, even if an additional 3500 containers are unloaded each week.

At the end of September, we saw prices soften. Based on big data, we see that things are not materially improving. (Graphic: Shipping rates,

Last month, a United Nations report noted that high freight rates could cause import prices to soar by 11 percent and consumer prices to soar by 15 percent between now and 2023.

Additionally, a 10% rise in container freight rates cuts the output of U.S. and European industries by more than 1%.

NOT WORTH IT

The report pointed out that the price of cheaper goods will rise proportionally more than that of dearer goods, and that poor nations producing low-value goods such as furniture and textiles will lose their competitiveness the most.

Retail prices for low-end refrigerators will rise 24% versus 65% for higher-end brands, Ben May, head of macro research at Oxford Economics, said, adding: Some companies may stop shipping cheap refrigerators because it will not be cost-effective to do so.

In the wake of economic reopening, people were more likely to spend on travel and dining out than on clothing or appliances. The shipping boom was expected to decrease.

This is challenged by new COVID variants and the enormous pandemic-time savings that could be put to use in the form of even more goods.

Hasbro, Dollar Tree, and Nestle, companies with high freight costs and rising prices, bemoaned them last earnings season.

Businesses will also need to restock since inventory-to-sales ratios are near record lows.

As a result, demand for goods should grow in the first half of 2019, Unicredit analysts said. (Graphic: Inventories,
According to James Gellert, CEO of analytics company RapidRatings, the situation could deteriorate if smaller companies cannot meet their commercial obligations.

Large enterprises have embedded these time bombs throughout their supply chains, which will pose many problems for their customers who rely on the goods and services they provide.


Until more vessels appear, there is no real relief.

Amazon Delivery 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. There has been an increase in ship orders this year, as shown in the graph below.