Johannesburg – The skyrocketing prices of shipping goods across the globe will result in higher cost of goods for net importers of finished products, like Africa, economists say.
A conflux of factors – including 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.
Economist Duduzane Ngezi told The Southern Times Business that Africa was likely to be hit hardest by the price increases, and retailers faced three tough choices: halting trade, raising prices, or absorbing the cost to pass it on later.
“The more than 100 percent increase in shipping costs is already being felt in Africa. The continent imports plenty of goods from Asia, Europe USA and other countries ranging from furniture, food, drinks, clothing and other goods. Consumer demand is likely to shift to services from goods, but the risk of course is that if higher shipping costs persist especially given ongoing shipping disruptions producers become more willing to pass these higher costs on to consumers.
“This is a continent which is also still struggling to acquire vaccines and now more pressure keeps coming. At the end of the day it’s the poor men who is likely to suffer more than the rich ones,” he said.
Freight costs are more painful for companies that move clunky, low-value items like toys and furniture.
French shipping company CMA CGM SA, which raked in net income of US$2.1 billion in the first quarter of 2021 compared to just US$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.
According to CEO consultant Sea-Intelligence in Copenhagen Mr Alan Murphy, Europe has also been hit hard by the shipping prices.
“Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record US$10,522, a whopping 547 percent higher than the seasonal average over the last five years. Anchovies from Peru have largely stopped being imported into Europe because with the higher freight costs they’re not competitive relative to what’s available locally.
“For some lower-value furniture makers, freight now makes up about 62 percent of the retail value. You simply can’t survive on this. Someone is bleeding very hard,” said Mr Murphy.
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 them a bit more attention.
Although still seen as a relatively minor input, economists estimate that a 205 percent increase in container shipping costs over the past year could raise producer prices by a very huge figure.
Some industry observers have also said companies are desperately trying to work around the higher costs as some have stopped exporting to certain locations while others are looking for goods or raw materials from nearer locations.
“The longer these extreme shipping freight rates last, the more companies will take structural measures to shorten their supply chains. Few companies can absorb a 15 percent increase in total delivered costs for internationally traded products,” said the European Shippers’ Council.
Reports say some firms in Europe have now resorting to extreme methods, like using truck convoys to get products including automotive parts, bikes and scooters from China.