Shipping Costs Create Pricing Problems in Every Sector

The skyrocketing price of shipping goods across the globe almost certainly cannot continue to be absorbed by the makers of those goods.

Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547 percent higher than the seasonal average over the last five years, according to Drewry Shipping.

With upwards of 80 percent of all trade in goods transported by sea, freight-cost surges are threatening to boost the price of everything from toys, furniture and car parts to coffee, sugar and anchovies, compounding inflation concerns in global markets.

“In 40 years in toy retailing I have never known such challenging conditions from the point of view of pricing,” said Gary Grant, founder of the U.K. toy shop The Entertainer. He has stopped importing giant teddy bears from China because their retail price would have had to double to add in higher freight costs.

“Will this have an impact on retail prices,” he asked. “My answer has to be yes.”

A confluence of factors—soaring demand, a shortage of containers, saturated ports and too few ships and dock workers—have contributed to the squeeze on transportation capacity on every freight path. Recent COVID outbreaks in Asian export hubs like China have made matters worse. The pain is most acutely felt on longer-distance routes, making shipping from Shanghai to Rotterdam 67 percent more expensive than to the U.S. West Coast, for instance.

Often dismissed as having an insignificant impact on inflation because they were a tiny part of the overall expense, rising shipping costs are now forcing some economists to pay more attention. Although still a relatively minor input, HSBC Holdings Plc estimates that a 205 percent increase in container shipping costs over the past year could raise euro-area producer prices by as much as 2 percent.

Few industry observers expect container rates to retreat any time soon. Lars Jensen, CEO of Vespucci Maritime in Copenhagen, said last week that there’s “zero slack in the system.”

French shipping company CMA CGM SA, which raked in net income of $2.1 billion in the first quarter compared with $48 million in the year-ago period, indicated recently that it expects “sustained demand for the transportation of consumer goods” to continue throughout the year.

Companies are desperately trying to work around the higher costs. Some have stopped exporting to certain locations while others are looking for goods or raw materials from nearer locations, according to Philip Damas with Drewry Supply Chain Advisors.

“The longer these extreme shipping freight rates last, the more companies will take structural measures to shorten their supply chains,” Damas said. “Few companies can absorb a 15 percent increase in total delivered costs for internationally traded products.”

Source: Bloomberg