Transport costs will impact consumer prices 2022, UNCTAD report
The recovery of the global economy is threatened by high freight rates, which are expected to continue in the coming months, according to UNCTAD’s Maritime Transport Review 2021, released this week.
UNCTAD analysis shows that the current surge in container freight rates, if sustained, could increase world import price levels by 11% and consumer price levels by 1.5% d ‘by 2023.
“The current surge in freight rates will have a profound impact on trade and undermine socioeconomic recovery, especially in developing countries, until shipping operations return to normal,” said the secretary general. from UNCTAD, Rebeca Grynspan.
“Returning to normal would require investing in new solutions, including infrastructure, freight technology and digitization, and trade facilitation measures,” she said.
Demand for goods increased in the second half of 2020 and into 2021, with consumers spending their money on goods rather than services during lockdowns and pandemic restrictions, according to the report. Working from home, shopping online, and increasing computer sales have all placed unprecedented demand on supply chains.
This strong variation in containerized trade flows has come up against capacity constraints on the supply side, including the transport capacity of container ships, container shortages, labor shortages, continued COVID-19 restrictions in port areas and congestion in ports.
This mismatch between sharply rising demand and de facto reduced supply capacity then led to record containerized freight rates on virtually all container trade routes.
For example, the Shanghai Containerized Freight Index (SCFI) spot rate on the Shanghai-Europe route was less than US $ 1,000 per TEU in June 2020, jumped to around US $ 4,000 per TEU at the end of 2020 and rose to US $ 7,395. by the end of July 2021. Additionally, cargo owners faced delays, surcharges and other costs, and still struggled to ensure their containers were moved quickly.
The impact of high transport costs will be greatest in Small Island Developing States (SIDS), which could see import prices rise by 24% and consumer prices by 7.5%. In the least developed countries (LDCs), consumer price levels could increase by 2.2%.
Supply chains will be affected by the rising costs of maritime trade. Low value-added items produced in small economies, in particular, could experience a severe erosion of their comparative advantages.
In addition, concerns abound that the sustained rise in shipping costs will not only weigh on exports and imports, but could also hurt the recovery of global manufacturing.
The report says that high and sustained rates are already affecting global supply chains, noting that Europe, for example, faces shortages of consumer goods imported from Asia such as home furnishings, bicycles. , sporting goods and toys.
According to the report, an increase in container freight rates will increase production costs, which may increase consumer prices and slow down national economies, especially in SIDS and LDCs, where consumption and production are highly dependent. Trade.
The high rates will also have an impact on low value-added items such as furniture, textiles, clothing and leather products, the production of which is often fragmented among low-wage economies, far away from major consumer markets. ; UNCTAD forecasts consumer price increases of 10.2% on the latter.
The analysis further predicts an increase of 9.4% for rubber and plastic products, an increase of 7.5% for pharmaceuticals and electrical equipment, 6.9% for motor vehicles and 6, 4% for machinery and equipment.
The impact of high freight rates will not be evenly distributed, even within Europe, and will generally be greater in smaller economies.
It is suggested that prices would increase by 3.7% in Estonia and 3.9% in Lithuania, compared to 1.2% in the United States and 1.4% in China. This differential also reflects greater “import openness,” the ratio of imports to GDP, which is generally higher in small economies.
Manufacturers in the United States are primarily dependent on industrial supplies from China and other East Asian economies, so continued cost pressures, disruptions and delays in container transport will hamper production, according to the report.
A 10% increase in container freight rates, coupled with supply chain disruptions, is expected to cause industrial production in the United States and the Eurozone to drop by more than 1%, while in China , production is expected to decrease by 0.2%.
UNCTAD stresses that transport costs are also influenced by structural factors, including the quality of port infrastructure, the trade facilitation environment and maritime transport connectivity, and that there is potential for significant improvements.