CONSUMER prices are seen to “significantly” increase in the coming year due to shipping bottlenecks that have forced freight rates to go up as well, according to a report by the United Nations Conference on Trade and Development (Unctad).
In its Review of Maritime Transport 2021 report, Unctad said the high freight rates are expected to linger in the coming months, posing a threat to economies’ bid to recover amid the pandemic.
Its analysis points to an 11-percent increase in global import prices between now and 2023 if freight rates remain high. This, as consumer price levels are expected to rise by 1.5 percent during the same period.
“The current surge in freight rates will have a profound impact on trade and undermine socioeconomic recovery, especially in developing countries, until maritime shipping operations return to normal,” Unctad Secretary-General Rebeca Grynspan said. “Returning to normal would entail investing in new solutions, including infrastructure, freight technology and digitalization, and trade facilitation measures.”
The spike in freight rates were due to “mismatch between surging demand and de facto reduced supply capacity,” Unctad said.
Since the second half of last year, the UN committee explained that consumer spending was primarily focused on goods instead of services amid the mobility restrictions. “Working from home, online shopping and increased computer sales all placed unprecedented demand on supply chains,” it noted.
The surge in orders put pressure on the supply chains due to heavier containerized trade flows, Unctad said, noting this was exacerbated by capacity constraints such as container ship carrying capacity, container shortages, labor shortages, Covid-19 restrictions across port regions and port congestions.
The report cited Shanghai Containerized Freight Index spot rate on the Shanghai-Europe route that increased to $4,000 per TEU (twenty-foot equivalent unit) by the end of 2020 from less than $1,000 in June of the same year. The spot rate swelled to $7,395 by the end of July this year.
“On top of this, cargo owners faced delays, surcharges and other costs, and still encountered difficulties to ensure their containers were moved promptly,” it added.
The high freight charges will affect all economies, but some will see greater impact.
Unctad said that small island developing states (SIDS) may deal with import prices rising by 24 percent and consumer prices increasing by 7.5 percent. The least developed countries (LDC), meanwhile, may see consumer price levels climb by 2.2 percent.
The heightened freight rates will increase production costs as well, the report noted, particularly for SIDs and LDCs where consumption and production highly depend on trade.
As a result, for example, Unctad projects a 10.2-percent consumer price increase in low-value-added items such as furniture, textiles, clothing and leather products, which are produced by low-wage economies.
The report also sees price increases in rubber and plastic products (9.4 percent), pharmaceutical products and electrical equipment (7.5 percent), motor vehicles (6.9 percent) and machinery and equipment (6.4 percent).
“The impact of the high freight rates will not be evenly spread, even within Europe, and will be generally greater in smaller economies,” Unctad added.
Resolving shipping woes
By improving the quality of port infrastructure, Unctad said average maritime transport costs will be cut down by 4 percent.
Better trade facilitation and liner shipping connectivity, meanwhile, will reduce costs by 3.7 percent and 4.4 percent, respectively, it noted.
This, as Unctad counsels continuing checks on the trends to improve cost-cutting measures and maritime trade efficiency, among others.
The UN group calls on the “governments to monitor markets to ensure a fair, transparent and competitive commercial environment and recommends more data sharing and stronger collaboration between stakeholders in the maritime supply chain.”
“In the medium to longer term, the maritime supply capacity will also be affected by the transition of the industry towards zero-carbon shipping,” Unctad stressed. “To ensure that the necessary investment in ships, ports and the provision of new fuels is not delayed, it will be important for investors to count on a predictable global regulatory framework.”