The constant enforcement of lockdowns, even in 2021, across countries amidst the outbreak of the COVID-19 pandemic has disrupted the entire global logistics and supply chain, and trade market. Countries are unable to export or import goods due to trade restrictions, losing much economic revenue.
a micro level, the pandemic-caused disruption is spawning a hike in the prices of even penny commodities making a hole in the pockets of the consumers. From a pin to a pin-stripped suit, a cup of coffee to kids’ toys, everything once-affordable is becoming hard to buy.
Further, transporting cargo through waterways from Shanghai, China to Rotterdam, Europe, now costs about 547% more than the seasonal average cost compared to the pre-pandemic times. With nearly 80% of all goods being transported by the sea today, the surge in the cost of freight charges is threatening to increase the prices of all commodities, including sugar, coffee, toys, furniture, auto parts, anchovies, and more.
According to one of the leading toy manufacturers in the United Kingdom, the industry has not witnessed such challenging conditions from a pricing point of view in many decades. Many soft toy sellers have stopped importing giant teddy bears from China to their domestic market. They know that the selling cost of these teddy bears would almost double and selling them to the general public already suffering from financial limitations due to COVID-19 will become a huge challenge.
An array of factors such as soaring demand in the international market, shortage of shipping containers, saturated ports, and less dock labor and ships to transport goods across borders, are collectively contributing to the squeeze in transportation capacity across various freight paths. The recent lapse of the COVID-19 pandemic in Asian countries, including China, has worsened the condition. The pain is more prominent for nations that export materials from far-off nations or through longer-distance routes. This is why shipping goods from Shanghai to Rotterdam today are costing 67% more than shipping the same goods from the U.S. west coast, for example.
Container and rail shipping operations at Berlin’s Behala Inland Port
Conveniently and often discarding the fact that shipping has nearly an insignificant impact on the global inflation level as they’re a small part of the overall expense, the rise in the cost of shipping charges is now making many economists reconsider their claims. One of the leading banking firms of the world estimates that a 205% rise in container shipping costs over the last year could increase euro-area producer prices by almost 2%.
Talking about retailers, they’re facing an equally hard time. They’re being forced to choose between one of the three options – halt trade, increase the prices of commodities or absorb the cost and pass it on later. Each of these means selling goods at an expensive rate. The feasibility of such options is unacceptable to both retailers and consumers.
Besides this, the prices of goods being bought by consumers are rising in many other different ways as well. For instance, Europe has largely stopped the import of anchovies, a kind of fish from Peru, owing to the increase in the transportation cost. They’re no longer a cheaper commodity to export from other nations to meet domestic needs. Similarly, European olive growers are no longer in a position to export their produce to the U.S. market owing to the significantly increased transportation cost and other export duties.
Shipping bottlenecks across important trade routes and increased freight charges have also affected the transportation of coffee beans which are largely sourced from Asian countries. The cost of procurement of arabica coffee beans, used by Starbucks, and robusta beans used for making instant coffee have increased, further forcing trade vendors to increase the prices of end products.
Container cost is causing the rise in the risk of higher retail prices
As stated above, the increasing freight cost is majorly affecting businesses that move clunky, low-value items such as furniture, toys, and more. Such commodities are bulky, occupy much space, and only limited quantities can be shipped per container. This significantly impacts the landing cost of the goods, further soaring the prices when they reach the markets.
Many lower-value furniture makers claim that due to the outbreak of the pandemic and a disrupted global logistics and supply chain, freight now makes up to about 62% of the retail value of their goods. They fear survival and heavy financial bleeding in the coming months if the situation continues to remain the same.
Businesses across the globe are constantly and desperately trying to work around the increasing prices of essential commodities. Many have even stopped exporting some items from certain locations and looking for goods or raw materials from nearby countries to meet the needs of their domestic customers.
Meanwhile, some European companies are even resorting to extreme methods such as using truck convoys to procure materials to meet their production needs. They’re getting automotive parts, bikes, and scooters from China through roadways.
Producer prices have sharply accelerated in the European area
Despite such havoc in the global market owing to the increasing prices, central bankers are still optimistic about the entire situation, especially when it comes to the European region. They’re claiming that although global logistics and supply chain bottlenecks are pushing up production prices, further adding to the rate of inflation, this is a temporary phase that should fade away by the end of this year.
The loss is not just at the manufacturing or consumer level, but for the shippers as well. Nearly all companies engaged in global trade have annual contracts with container lines. Their prices are fixed at the starting of the year to streamline the entire supply chain process. However, with the trade routes shrinking in 2020 and the effect continuing in 2021, shipping companies are forced to operate at previously fixed prices, bearing huge losses.
Also Read: How to Diversify Your Supply Chain
With the hope that lockdowns across nations may completely get lifted by the end of this year and the global economy bouncing back to the pre-pandemic time, the prices of consumer goods may also resort to their previous prices. However, industry veterans suggest that the shipping industry will take longer to recover from the aftermath of the pandemic. Freight costs will continue to be on a rise, especially considering the recent disruption.
Even though the magnitude of increased prices may seem meager at the moment, the consequences of such disruption will show its effect in the coming time. The danger is just around the corner, which both businesses and nations are unable to map.