The cost of shipping has recently reached an 18-month high, posing a potential threat to the already falling inflation rate. According to data provided by global logistics company DSV, the average cost of shipping a 20ft container from Shanghai to Europe has risen to $3,949 (£3,102) – the highest it has been since September 2022. This increase in shipping costs is attributed to several factors, including the ongoing attacks by Houthi militants in the Red Sea, which have been targeting boats attempting to dock in and export from Israel since late last year.
The rise in shipping costs is evident in the Shanghai Containerised Freight Index (SCFI), the most widely used measure of freight cost, which has seen a sharp increase in the past month. This index had previously reached a peak of $4,252 (£3,341) per container in the aftermath of the 2021 Suez Canal blockage, which disrupted global supply chains and caused chaos at ports.
The Suez blockage, caused by the grounding of the Ever Given container ship, kickstarted a steep rise in shipping costs as goods were unable to move freely along this vital shipping artery. The resulting supply chain disruptions and diversions further exacerbated the situation, leading to an increase in inflation rates. This was one of the first shocks to the economy, which later saw a peak inflation rate of 11.1% in October 2022, caused by factors such as energy price hikes due to Russia’s invasion of Ukraine.
Although inflation has since dropped to 2.3%, the expensive shipping costs could potentially drive it back up. This is because a significant portion of goods on UK shelves spend at least some time at sea, and higher shipping costs mean importers may have to increase prices, ultimately affecting consumers.
The recent surge in shipping costs is primarily attributed to the ongoing crisis in the Red Sea, which has resulted in considerable disruptions to global supply chains. Maersk, the world’s second-largest shipping container firm, stated that it expects to see even higher profits than initially anticipated due to the high demand and disruptions in the market. The company also highlighted the ongoing threats to commercial vessels in the Red Sea and the resulting supply chain bottlenecks, stating that these issues are not likely to improve anytime soon. As a result, Maersk believes that more capacity will be needed to resolve these problems and stabilize the global supply chain.
In conclusion, the current high shipping costs are a cause for concern, as they have the potential to impact the already falling inflation rate and lead to higher prices for consumers. The ongoing crisis in the Red Sea and other market factors are expected to keep shipping costs high in the near future, highlighting the need for solutions to stabilize and improve global supply chains.
