Inflation may be rearing its head in the world’s economy and its effects could already be a factor in rising logistics costs.
It is fairly clear that that container shipping freight rates are increasing aggressively. The digital forwarder Freightos reported rates to the Asia-US West Coast increased 1.3% week-on-week as of w/e April 9 but are up 34.8% since the end of 2020. Whilst Asia-Northern Europe climbed to a new high of $8,430/FEU in February 2021, an increase of 414.3% compared to the same week in 2020.
At present these rises tend to be blamed on short-term problems. Obviously, the impact of the Suez Canal blockage is still being felt with both Maersk and Hapag Lloyd suggesting that the issues around container terminal and ship availability could carry on into May, but there are other congestion problems in many places around the world especially in North America, such as the misallocation of containers on East-West Trans-Pacific routes.
Air freight rates also remain elevated, with Freightos reporting a 50% rise since the beginning of the year. The situation here is complicated by the uncertain return of passenger services and thus belly-freight capacity.
Land transport is buoyant in many areas with rates in the US very strong, although again, this is complicated by congestion especially around West-Coast ports with knock-on effects for containerised and intermodal freight across the country. From a longer-term perspective other logistics markets, such as warehousing, are also seeing supply struggling to keep up with demand something ascribed to the shift to e-retail.
Certainly, a mix of congestion and e-retail fuelled consumer demand plays a role in these price dynamics.
However, there are possibly deeper reasons for the rise in prices. For the past twelve months, governments around the world have been aggressively printing money fearful of a collapse in demand from the effects of the policies supposed to control COVID-19. The response has included an increase in the money supply in double-digit percentages.
Yet, despite the fears of central bankers, inflation rather than deflation has appeared in a number of parts of the economy. For example, inflation in commodity prices has been significant. In particular energy prices have been increasing. This is usually an early sign of inflation. It is also worth noting that inventory levels in the US in particular are quite low which is not what you expect in a deflationary environment.
It is quite possible that the scale of monetary and fiscal stimulation in many developed markets across the world may be releasing a wave of inflation that will underpin rises in logistics costs well into next year. Rather than higher freight rates being a short-term trend that will pass as 2021 progresses, they may persist well into 2022 and beyond.
Source: Transport Intelligence, April 13, 2021
Author: Thomas Cullen
The Ti Dashboard displays sea freight rates across a number of routes and can be found on the Sea Freight page of the Ti Dashboard.
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