Soaring shipping rates to pump up global inflation by 1.5 per cent: UNCTAD

Our Bureau Mumbai | Updated on November 18, 2021

The container vessel SCI, Chennai anchored at ICTT Vallarpadam, in Kochi (FILE PHOTO - REPRESENTATIVE IMAGE)   -  The Hindu

According to a study, surging freight rates could increase global import prices by 11 per cent

The global economic recovery is threatened by high freight rates, which are likely to continue in the coming months, according to the United Nations Conference on Trade and Development (UNCTAD’s) ‘Review of Maritime Transport 2021’ published on Thursday.

UNCTAD’s analysis reveals that the current surge in container freight rates, if sustained, could increase global import price levels by 11 per cent and consumer price levels by 1.5 per cent between now and 2023.

“The current surge in freight rates will have a profound impact on trade and undermine socio-economic recovery, especially in developing countries, until maritime shipping operations return to normal,” UNCTAD Secretary-General Rebeca Grynspan, said.

Shipping lines have benefited from soaring freight rates, the report notes, as surcharges, fees and rates were temporarily hiked even further after the container ship ‘Ever Given’ blocked the Suez Canal in March 2021.

The increasing costs of container shipping has been a challenge for all traders and supply chain managers, says the report, but especially so for smaller shippers, who may be less able to absorb the additional expense and are at a disadvantage when negotiating rates and booking space on ships.

“In the face of these cost pressures and lasting market disruption, it is increasingly important to monitor market behaviour and ensure transparency when it comes to setting rates, fees and surcharges,” the report recommended.

It calls on 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.

National competition authorities, therefore, need the capacity to monitor trends in freight rates, fees and charges, it said.

“Returning to normal would entail investing in new solutions, including infrastructure, freight technology and digitalisation and trade facilitation measures,” Grynspan said.

The trigger for a spike in freight rates and costs

The demand for goods surged in the second half of 2020 and into 2021, as consumers spent their money on goods rather than services during pandemic lockdowns and restrictions, according to the report. Working from home, online shopping and increased computers sales, all placed unprecedented demand on supply chains.

This large swing in containerised trade flows was met with supply-side capacity constraints, including container ship carrying capacity, container shortages, labour shortages, continued on and off Covid-19 restrictions across port regions and congestion at ports.

This mismatch between surging demand and reduced supply then led to record container freight rates on practically all container trade routes.

Supply chains will be affected by higher maritime trade costs. Low-value-added items produced in smaller economies, in particular, could face serious erosion of their comparative advantages.

In addition, concerns abound that sustained higher shipping costs will not only weigh on exports and imports, but could also undermine a recovery in global manufacturing.

The report says sustained high rates are already affecting global supply chains.

Addressing high freight rates

Improving the quality of port infrastructure would reduce world average maritime transport costs by 4.1 per cent, while better trade facilitation measures costs would reduce costs by 3.7 per cent and by 4.4 per cent by improved liner shipping connectivity.

The Covid-19 pandemic’s impact on maritime trade volumes in 2020 was less severe than initially expected, but its knock-on effects will be far-reaching and could transform maritime transport, the report said.

UNCTAD predicts that the annual growth in maritime trade between 2022 and 2026 will slow to 2.4 per cent, compared to 2.9 per cent over the past two decades.

The report shows that maritime trade contracted by 3.8 per cent in 2020, reflecting an initial shock, but it rebounded later in the year and is projected to increase by 4.3 per cent in 2021. The medium-term outlook for maritime trade remains positive, but is subject to “mounting risks and uncertainties”.

Published on November 18, 2021

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