New storm hits shipping sector, raising inflation fears | Economy and business

Global maritime trade is settling into a new normal. The cost of shipping the giant, colorful containers that carry everything from sandals to electric vehicles has risen again as the ongoing attacks on the Suez Canal force ships to take longer and more expensive routes. If the industry was in a “pre-alert” state in late 2023, when Houthi militias first launched attacks on Israeli-linked cargo ships, it now appears to be entering a new phase of uncertainty that could have a direct impact on inflation.

The World Container Index, which is published weekly by consulting firm Drewry and measures the average price of ocean freight, has risen to $5,901 — a level not reached since late 2022. The index has more than doubled since early May. While the situation is still far from what was seen during the Covid-19 pandemic — with stratospheric prices that have led to a spike in inflation across the planet — experts are betting that the current increase in freight rates will be passed on to consumer goods in the coming months. If that affects inflation, it could have an impact on future decisions on interest rate cuts.

All eyes are on the 120-mile Suez Canal, which accounts for 30% of global container trade. There have been 45 Houthi drone attacks on the shipping channel between November last year and mid-March. In a worst-case scenario, if the conflict drags on for the rest of the year — something analysts see as increasingly likely — global inflation could rise by 5% annually, according to the OECD. JPMorgan is more cautious, predicting a 0.7% rise in the first half.

The price to ship a container between the busiest deep-water route — the one connecting the ports of Shanghai and Rotterdam — has reached $8,056 per 40-foot container. That’s five times more than a year ago. The price increase comes as ships are forced to take other routes. Many ships that used to sail the Red Sea are now sailing around the Cape of Good Hope in southern Africa — a route that adds nine to 14 days to the journey from Asia to Europe. The change is also affecting other routes, such as the one from Rotterdam to New York, where freight costs have risen 150% in the past six months to $6,835.

At stake is the future of a sector that is becoming increasingly important to the global economy: the semiconductor industry. The chip industry, which is needed in everything from weapons to home appliances, has been hit hard by shortages of these essential components. Although semiconductor supply chains have since recovered, fears of a possible Chinese invasion of Taiwan and the AI ​​sector’s insatiable hunger for semiconductors could lead to another global chip shortage.

The rise in freight prices is good news for the big names in the shipping sector, whose shares have soared. China’s COSCO is up 74% since January, Germany’s Hapag-Loyd is up 13% and Taiwan’s Evergreen — which was responsible for the 2022 Suez Canal blockage — is up 21%. But not all the big names are celebrating. Denmark’s AP Moller-Maersk Group has shed 16% in the past six months after reporting weak results in the final quarter (compared to record pandemic results) and lower forecasts for the coming months.

“Constant care”

Jordi Espín of the European Shippers’ Council doesn’t believe the situation will improve in the short term. He predicts that the increase in freight costs will be passed on to consumer goods after the end of summer. “We will have a more expensive Christmas,” Espín predicts. Two factors make the situation even more unsustainable, he says. First, the expansion of trade routes is causing containers to pile up in major ports, he says, which in turn creates serious problems for shipping companies when it comes to docking and unloading more goods. This scenario, in addition to increasing transport costs, is a perfect excuse for shipping companies to inflate their rates, he says.

Óscar Calvo, CEO of JCV Shipping, a freight management company, added that the increase in freight rates was also due to a rise in Chinese exports, which rose 10% in the first three months of the year. Images of congested ports were again common. In Singapore, home to the world’s second-busiest port and a key transshipment hub between Asia and the West, delayed shipments rose 27% in recent months compared with a year earlier, according to data from FourKites, a supply chain tracking platform.

Clarksons Research, a shipping specialist, is also concerned about the state of commodities markets. The agency estimates that oil tanker arrivals at the Suez Canal fell 25% in the first half of the year, while grain arrivals were 64% lower than in December last year. Pressure in the Red Sea (on top of the start of the hurricane season) has pushed the price of Brent crude — the benchmark in Europe — to almost $86 a barrel.

Ghosts of the past

It’s not the first time the deep-sea trade, popularized in the 1950s for its efficiency in moving goods, has raised concerns in global markets. The pandemic was the first big lesson the industry had to learn. Generous checks issued in the United States to cope with the crisis boosted household spending, along with increased consumption of furniture and electronics, increased shipping traffic, and shipping companies unable to keep up with orders. Added to that is a structural shortage of workers due to Covid-19. The crisis has led to record-high freight rates and a wave of inflation around the world.

Logistically, there’s less chance of a repeat of the bottlenecks of 2022, according to Niels Madsen, vice president of operations at Copenhagen-based Sea-Intelligence. Madsen points out that shipping companies have been busy building larger-capacity ships, thanks in large part to the huge profits they’ve made during the pandemic. “New shipping fleets are absorbing excess demand and reducing the impact of the container ship shortage,” Madsen says.

“The pandemic has taught us a lot,” Calvo adds. The expert points out that companies are no longer as vulnerable to disruptions in maritime trade because they have sought alternative suppliers in nearby areas and have increased supplies. However, he warns that once the crisis in the Red Sea ends, it will take six months for the routes to stabilize. In other words, the situation is still far from under control.

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