Notes

Analysis-Shipping costs are another concern for inflation watchers to navigate
Reuters: A global shipping crisis will likely continue causing delays and fueling inflation into 2023, as it did during the Coronavirus pandemic.

It is rare for economists to take shipping into account when calculating inflation and GDP, and companies are more concerned with raw materials and labour costs than transportation costs. 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. Prior to the pandemic, the same container cost only $1300.

It is estimated that 90% of the world's goods are shipped by sea, potentially escalating the already troublesome global inflation.


Xeneta chief analyst Peter Sand doesn't expect container shipping costs to normalize before 2023.

In other words, the rising cost of logistics isn't a temporary issue. Essentially, the shipping element, however small it may be, is now much bigger than it has ever been before, and it could be permanent.

After a six-day blockade of the Suez Canal in March, ocean transport costs initially increased. It further tightened already strained vessel-hiring market, because a lack of certainty about future fuel and emissions regulation had pushed orders for new ships to record lows.

A surge in consumer demand followed after the Coronavirus lockdowns, whereas dockyards were struggling with labor shortages related to COVID.

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.

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.

Although plans are in place to unload an extra 3500 containers each week, the Los Angeles / Long Beach backlog is unlikely to be cleared before 2023.

At the end of September, we saw prices soften. As far as big data is concerned, things aren't getting any better. (Graphic: Shipping rates,

United Nations officials warned last month that high freight rates were a threat to the global economy, suggesting they could increase global import prices by 11% and consumer prices by 15% by 2023.

The impact also ripples out; a 10% increase in container freight rates reduces US and European industrial production by more than 1%.

NOT WORTH IT

It was noted in the report that cheaper goods will go up proportionally more in price than dearer ones, and that poor nations producing low-value-added items such as furniture and textiles will face the steepest drop in competitiveness.

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.

After economic reopening, people were expected to spend more on travel and dining out than on clothing and appliances, reducing the shipping boom.

The theory is being challenged by new COVID variants, and the large pandemic-time savings customers could direct into more goods.

Companies including Hasbro, Dollar Tree and Nestle complained about rising freight costs during the last earnings season.

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

In the first half of next year, analysts with Unicredit expect this to support the demand for goods. Air Shipment Track TopAlpha (Graphic: Inventories,
A major problem might arise if smaller companies are unable to meet their commercial obligations and struggle to stay afloat, according to James Gellert, CEO of analytics company RapidRatings:

Large enterprises have a number of time bombs strewn throughout their supply chains. This will present many problems for the consumers who rely on their goods and services.


More vessels may be needed to provide relief.

Ship orders have risen significantly this year. Rico Luman, ING economist and senior managing director, predicted that it will take until 2024 for substantially more tonnage to reach the seas. (Graphic: New ship orders are surging this year,


Here's my website: https://topalpha.de/