The global economy has done better than almost everyone expected as it emerged from last year’s pandemic-induced recession, leading to a dramatic increase in Irish merchandise exports of 25% in the first quarter of year after year.

The rollout of the vaccine and the lifting of Covid restrictions have created much of the international demand, with a further surge brought on by wholesalers and retailers who ran out of stocks due to low demand last year and now have to restock urgently.

However, shipping companies have been unable to meet demand, creating a transport price bubble unprecedented for more than a decade.

The transport of a 40-foot container of freight by sea on one of the busiest routes for Irish traders, from China to Europe, increased 547% above the seasonal average over the past five years, according to international consulting firm Drewry, as reported in It’s June Global Container Index report.

All major trade corridors have seen rate growth in the first five months of 2021 and new records continue to be set.

With over 80% of all trade in goods carried by sea, increases in freight costs threaten to push up the price of everything imported into Ireland, from building materials, furniture and auto parts to coffee shops, with sugar and anchovies.

This compounds the concerns of Irish importers who are already bracing for an acceleration in inflation.

A confluence of factors continues to push prices down. These range from soaring demand, a shortage of containers, rising oil prices and an insufficient number of ships.

The recent new outbreaks of Covid in Asian export centers have made matters worse, indicating that the price hike is likely to continue.

Market information firm Xeneta reported that historically high long-term container contract rates are being pushed to new highs; in May, their analyzes showed a further 9% price increase, and they expect little relief in the coming months.

Often dismissed as having an insignificant impact on inflation because they represented a tiny part of overall spending, rising transport costs are now forcing some economists to pay a little more attention.

While still viewed as a relatively minor input, HSBC estimates that a 205% increase in container shipping costs over the past year could raise eurozone producer prices by 2%.

“At the retail level, sellers are faced with three choices: stop trading, increase prices or absorb the cost and pass it on later, which would actually mean more expensive products,” said Jordi Espin, Director of Strategic Relations at the European Commission. Shippers Council.

Giving a typical example, Mr. Espin states that bottlenecks and shipping costs hamper the transportation of arabica coffee beans, used by Starbucks, and robusta beans used to make Nestlé and Nescafé instant coffee, which come largely from Asia.

Transportation costs are more onerous for businesses that move bulky goods, such as building materials and furniture.

If it is bulky products, it means that you cannot put a lot of it in the container and it will have a big impact on the landed price of the goods.

Some Irish furniture importers claim freight now accounts for around 62% of retail value.

Expensive and unreliable sea freight pushes exporters towards air freight, but this demand impacts prices and increases the cost of unloading goods.

Central bankers have so far been optimistic about the phenomenon, arguing that the rise in consumer prices linked to supply hiccups will not last.

ECB President Christine Lagarde said last month that while supply chain bottlenecks will push up producer prices and the headline inflation rate is set to rise further in the second half of this year , the effect will wear off.

Sharon Donnery of the Central Bank said that “the pressure on prices is transient”.

This is cold comfort to companies that desperately need to sidestep higher costs now to continue trading profitably.

Some have stopped exporting to distant markets. Others are scrambling for other sources of supply at lower cost.

  • John Whelan is Managing Partner of Linkage Partnership

Source link

Leave a Reply

Your email address will not be published.