Notes

Costs associated with analysis-shipping also pose a danger to inflation-watchers
Like the Coronavirus pandemic, and the economic disruption it has triggered, the global shipping crisis will continue to delay goods traffic and lead to 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.

FBX index statistics indicate that the shipping cost for a 40-foot container (FEU) unit has eased about 15% from September's highs above $11000. Prior to the pandemic, the same container cost only $1300.

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

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

Sand said the higher cost of logistics is not a transitory phenomenon. Shipping, however small it may seem, plays a much larger role in overall prices now than it ever has before, and its effect could be permanent.

A six-day blockage of the Suez Canal in March triggered a hike in ocean transport costs. As a result, vessel-hiring markets were further constrained as uncertainty about future fuel and emissions regulations had driven orders for new ships to record lows.

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

Early in November, Berenberg analysts estimated that 11% of the world's loaded container volumes were held up in a bottleneck, down from August peaks but far above the pre-pandemic 7%.

BACKLOG UNTIL 2023

In October, Los Angeles / Long Beach, the world's biggest container port, took two times longer to turn around ships than they did before the pandemic, said RBC Capital Markets.

While the worst may now be behind us, RBC analyst Michael Tran does not expect freight prices to return to pre-pandemic levels until another couple of years.

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.

The softening we saw in prices at the end of September is a false dawn. Based on big data, we see that things are not materially improving. (Graphic: Shipping rates,

In a recent report, the United Nations warned that high freight rates could threaten global economic recovery, raising global import prices by 11% and consumer prices by 15% by 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

Cheaper goods will rise in price proportionately more than dearer ones, with poor nations producing low-value-added items like furniture and textiles being the most adversely affected.

Retail prices for cheaper fridges will rise by 24%, compared with 65% for costlier models, says Ben May, senior macroeconomist at Oxford Economics, saying: The companies may simply cease shipping the cheap models since they won't be profitable.

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.

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

Companies such as Hasbro, Dollar Tree, and Nestle expressed concerns about freight costs and price increases in the last earnings season.

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

A Unicredit analyst said this will lead to a rise in demand for goods through the first half of next year. (Graphic: Inventories,

If smaller companies are unable to meet their commercial obligations and struggle to stay afloat, said James Gellert, CEO of analytics company RapidRatings:

Large enterprises are walking through a minefield of time bombs and their supply chains will face a series of problems for their customers who depend on their products and services.

Shipment Real relief may only come after more vessels appear.

Ship orders have risen significantly this year. Rico Luman, senior economist at ING, predicted that it will be 2024 before huge amounts of new tonnage can be added to the ocean. New ship orders are soaring this year, according to this graph.

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