Shipping costs: another inflationary blow to everything we buy

 

Every single thing we buy from our local stores, or order online, has to use transport to get to them and/or us.  No exceptions whatsoever.  That costs money;  sometimes a few pennies for a local delivery run, when combined with many other such deliveries, and other times a significant amount when it's a big delivery with few accompanying items to spread the expense.

Given that most consumer goods are currently made outside our shores, and have to be imported (mostly from China and other Far Eastern nations), the cost of shipping them is a factor that has to be kept in mind.  The current snarl-up in worldwide shipping is contributing to massive increases in that cost.

Hapag-Lloyd has just announced a $3,000 per 40ft GRI [General Rate Increase] on Asia to the US and Canada services from 15 June.

A year ago, the Shanghai Containerized Freight Index (SCFI) US west coast component stood at just $1,686 per 40ft – 12 months on, and shippers are paying up to $14,000 to ship the same cargo on the same route in the same ships.

Although today’s Freightos Baltic Index (FBX) reading for the route jumped 9.5%, to $5,516 per 40ft, there is virtually no chance of shippers securing space at that price.

Typically, quotes The Loadstar has seen for the route, after inclusion of equipment and space guarantees, are nearer to $10,000, with some carriers wanting up to $14,000 for an early June shipment.

“Today’s environment is a free-for-all, and it seems carriers are looking to get what they can, while they can,” said Jon Monroe of Washington state-based Jon Monroe Consulting.

For the US east coast, the FBX spot rate spiked by 11.5% on the week, to $7,358 per 40ft, but here too shippers are likely to have to pay substantially more to get equipment and a guaranteed shipment.

“With nearly 40% of containers getting rolled, many shippers are paying significantly more in premiums in the hopes of getting space,” said Freightos research lead Judah Levine.

. . .

“The Asia ocean freight market is broken right now,” said UK-based NVOCC Westbound Logistics. “We are experiencing conditions on this trade that we have never witnessed before,” the forwarder told its customers this week.

The FBX component for North Europe increased by 1.74% this week, to $8293 per 40ft, which, although an astonishing 460% higher than a year ago, is unlikely to turn the heads of carriers that are effectively auctioning space to the highest bidders, some of which are prepared to pay $16,000 or more to secure prompt shipment.

It is the same story on Asia to Mediterranean services, where the FBX spot of $9,395 per 40ft, up 5% on the week before, will not buy space much before July or August.

And, perhaps even more worrying for North European exporters to the US, considering the pace of the rate hikes, the FBX transatlantic component leapt by 20% this week to a new record of $4,299 per 40ft, the rates having doubled in the past two months.

There's more at the link.

The impact of these dramatic increases varies according to what's in the container.

• A standard 40ft maritime container can hold about 5,000 pairs of shoes.  At last year's shipping rate of $1,686 per container, that translates to a cost per pair of shoes of only $0.34.  However, at $14,000 per container, it's now $2.80 per pair - and that's just for the sea voyage from China to the USA.  Add in (also rising) transport costs from the factory to the port in China, and multiple transport legs by road and/or rail from the US port to wholesalers and distributors on the way to the retail establishment, and suddenly a cheap pair of shoes (say, $20 at Walmart or an equivalent store) is soon likely to cost $25, just to cover shipping and delivery costs.  (That ignores any increase in the cost of the materials used to make it, or wages for the workers who do so.)
• The same container can hold up to 40 average-size household refrigerators (not the largest models - just the typical middle-of-the-range top-freezer unit).  At last year's rates, the trans-Pacific shipping cost per unit would be just over $42.  However, at today's rates, it'll be $350 apiece, plus higher costs for every other leg of its journey from manufacturer to consumer.  The price of that refrigerator will also go up by about 25%, solely due to transport and shipping expenses;  but that's starting from a much higher base price, so that a $650-$700 refrigerator last year will shortly cost about $1,000.
• There's no end in sight to such increases.  Whether container or bulk shipping, transport costs are expected to continue their upward trend.  What's more, manufacturers must pay such increases on all the raw materials and components they buy to build their products;  so the increases affect every link in the consumer product chain.  Stand by for even heavier inflationary pressures as this gets worse.

There's simply no way manufacturers, importers, distributors and retailers can absorb cost increases like that.  They're going to be passed on to us, the consumer;  and many of us won't be able to afford them easily.  Some will say, "Oh, well, just buy something used off Craigslist or an auction site, and make do with that until things improve."  Sadly, that won't help much, because many more people will be trying to do just that - so prices will shoot up there, too, in line with increased demand.  Just look at what's happened to used car prices over the past few months.  One way or another, we're all going to be affected.

Many voices have been warning about dramatic increases in the inflation rate for a long time now.  As I pointed out a couple of weeks ago, those increases are no longer pending - they're already here.  With news like this, expect them to get worse - quickly.

If you really need to buy a big-ticket item, it might not be a bad idea to do so as soon as you can, before these inflationary pressures make it all the way through the supply chain and reach you.  On the other hand, don't spend all your reserve cash to do so.  In difficult economic times, you may need the money more than the item you want to buy.  I suspect many of us (including yours truly) will be learning anew the wisdom of the old slogan from the Great Depression and World War II:

Use it up.  Wear it out.  Make it do, or do without.

Peter