Shipping cost surge raises retail price pressures and inflation risks

A surge in demand since the lows of the coronavirus recession has sent the cost of sea freight skyrocketing around the world — and that could soon see consumers paying higher prices.

Key points:

  • Soaring demand for physical goods has increased congestion and delays at the world’s ports and pushed up shipping costs
  • The price of products like canned food, shoes, clothes, and computers could increase if retailers start to pass on the higher freight and input costs
  • The cost of shipping a 40 foot container from Shanghai to Sydney on the spot market has doubled

For the first time, the cost of shipping a container on the world’s busiest shipping routes from China to Europe surpassed $US10,000 ($13,513), a rise of more than 500 per cent since June last year. At the same time, the prices of major commodities like iron ore, steel and timber have jumped as economies recover from the coronavirus. Soaring demand for physical goods thanks to government stimulus, coronavirus travel restrictions, more time at home and a global shortage of cargo containers has increased congestion and delays at the world’s ports and pushed up shipping costs. Major retailers like the Reject Shop have already flagged price rises because they have seen the cost of importing goods double or triple. That means the price of products like canned food, shoes, clothes, and computers could increase if retailers start to pass on the higher freight and input costs.

Sky-high cargo costs

Over the year to May 2021, the median cost of shipping a 20 foot export container from Australia to China increased by almost 40 per cent to nearly $1,479, according to figures provided by Shipping Australia and Mizzen Group. Although, Shipping Australia points out that at the beginning of the pandemic, Australia to China rates were $1,370 per container. 

The cost of importing goods from China — the world’s factory — has surged much more. 

The most expensive trade route is Shanghai to Rotterdam, according to Drewry Supply Chain Advisors, where spot rates for a 40 foot container have soared 518 per cent since June last year to $US10,462 ($13,513). And the cost of shipping a 40 foot container from Shanghai to Sydney on the spot market doubled from a year ago to $US4,307 ($5,563) according to digital global freight booking platform Freightos. 

Missed ports

Shipping companies said they have been taking action to minimise the impact of port congestion, such as skipping ports of call and cancelling planned sailings. But that can add to delays for businesses, with Ms Pearson saying that one shipment was diverted to New Zealand and took weeks to get back to Australia. Shipping Australia chief executive Melwyn Noronha said huge demand for freight and rising expenses had seen the cost of running a cargo ship jump to more than $92,000 a day, not including fuel. 

“The demand has surged as a result of COVID and that has created a huge demand for goods, and those goods have got to be transported on a ship,” he said.

The trade congestion worsened when a huge cargo ship was stuck in the Suez Canal in Egypt in March. The port logjams have also worsened the situation for some Australian exporters, who have been caught up in the trade tensions with China

Call for price regulation

Mr Zalai met Trade Minister Dan Tehan last week to call for regulation of the shipping industry like in the US, where there is a Federal Maritime Commission. The Productivity Commission is investigating vulnerable supply chains in Australia.

“So what we do need is just some level of regulation to make sure that pricing here isn’t artificially being inflated, and that again, there’s enough safeguards in place to ensure that surcharges are reasonable,” Mr Zalai said.

Mr Noronha disagrees. “There is absolutely no economic justification to regulate the shipping industry,” he said. “It’s a huge industry where you have multiple players competing against each other.” The record high shipping expenses for businesses look like they are here to stay for 2021 at least, or until the global economy slows down.  Bloomberg Intelligence said it expects pressure to remain on sea freight costs, putting the shipping industry on a strong footing for a record year. The Baltic Dry Index, which tracks the cost of moving commodities such as coal and iron ore, is at the highest in a decade as China’s economy resurges from the coronavirus pandemic.

SOURCE: ABC NEWS

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