UN Sees Prices On Consumer Products Rising 10% From Surging Shipping
November 19, 2021
UNCTAD warns that global consumer prices will rise significantly in
the year ahead until shipping supply chain disruptions are unblocked and
port constraints and terminal inefficiencies are tackled.
recovery of the global economy is threatened by high freight rates,
which are likely to continue in the coming months, according to UNCTAD’s
Review of Maritime Transport 2021 published on 18 November.
UNCTAD’s analysis shows that the current surge in container freight
rates, if sustained, could increase global import price levels by 11%
and consumer price levels by 1.5% between now and 2023.
“The current surge in freight rates will have a profound impact on trade
and undermine socioeconomic recovery, especially in developing
countries, until maritime shipping operations return to normal,” said
UNCTAD Secretary General Rebeca Grynspan.
“Returning to normal would entail investing in new solutions, including
infrastructure, freight technology and digitalization, and trade
facilitation measures,” she said.
What triggered the spike in freight rates and costs
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 containerized 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 de facto reduced supply
capacity then led to record container freight rates on practically all
container trade routes.
For example, the Shanghai Containerized Freight Index (SCFI) spot rate
on the Shanghai-Europe route was less than $1,000 per TEU in June 2020,
jumped to about $4,000 per TEU by the end of 2020, and rose to $7,395 by
the end of July 2021. On top of this, cargo owners faced delays,
surcharges and other costs, and still encountered difficulties to ensure
their containers were moved promptly.
Everyone is affected, but not equally
The impact of the high freight charges will be greater in small island
developing states (SIDS), which could see import prices increase by 24%
and consumer prices by 7.5%. In least developed countries (LDCs),
consumer price levels could increase by 2.2%.
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 the 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, noting that Europe, for example, has been facing shortages of
consumer goods imported from Asia such as home furnishings, bicycles,
sports goods and toys.
According to the report, a surge in container freight rates will add to
production costs, which can raise consumer prices and slow national
economies, particularly in SIDS and LDCs, where consumption and
production highly depend on trade.
The high rates will also impact on low-value-added items such as
furniture, textiles, clothing and leather products, whose production is
often fragmented across low-wage economies well away from major consumer
markets; the UNCTAD predicts consumer price increases of 10.2% on these.
The analysis further predicts a 9.4% increase in rubber and plastic
products, a 7.5% increase for pharmaceutical products and electrical
equipment, 6.9% for motor vehicles and 6.4% for machinery and equipment.
The impact of the high freight rates will not be evenly spread, even
within Europe, and will be generally greater in smaller economies.
It is suggested that prices would rise by 3.7% in Estonia and 3.9% in
Lithuania, compared with 1.2% in the United States and 1.4% in China.
This differential also reflects a greater “import openness”, the ratio
of imports to GDP, which is typically higher in smaller economies.
Manufacturers in the United States rely mainly on industrial supplies
from China and other East Asian economies, so continued cost pressures,
disruption and delays in containerized shipping will hinder production,
according to the report.
A 10% increase in container freight rates, together with supply chain
disruptions, is expected to decrease industrial production in the United
States and the euro area by more than 1%, while in China production is
expected to decrease by 0.2%.
UNCTAD emphasizes that transport costs are also influenced by structural
factors, including port infrastructure quality, the trade facilitation
environment and shipping connectivity, and there is potential for
Figure - Simulated impact of current container freight rate surge on
import and consumer price levels
Addressing high freight rates
UNCTAD urges countries to consider a portfolio of measures that span
hard and soft infrastructure and services. Improving the quality of port
infrastructure would reduce world average maritime transport costs by
4.1%, while costs would be reduced by 3.7% by better trade facilitation
measures and by 4.4% by improved liner shipping connectivity.
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
The report urges continued monitoring and analysis of trends to find
ways of cutting costs, enhancing efficiency and smoothing delivery of
maritime trade. It also emphasizes the need for smaller economies to
diversify by graduating to higher-value-added products to be more
resilient to external shocks.
In the medium to longer term, the maritime supply capacity will also be
affected by the transition of the industry towards zero-carbon shipping.
To ensure that the necessary investment in ships, ports and the
provision of new fuels is not delayed, it will be important for
investors to count on a predictable global regulatory framework.