The UN warns that high freight rates push up global inflation
The United Nations warned that the rising transportation costs caused by the tightening of global supply chains will further aggravate global inflation and cause a disproportionate blow to the economies of developing countries.
The United Nations Conference on Trade and Development estimated in a report on Thursday that if global consumer prices remain high next year, soaring freight rates may push up global consumer prices by another 1.5%.
The surge in demand for goods caused by the pandemic, coupled with the disruption of the supply chain from the congested port to the Suez Canal blockade, has caused freight rates to soar to record highs, reaching about five times the average of the past decade.
But developing countries that rely on imports will be hit harder by high transportation costs. The report shows that consumer prices in 46 least developed countries are expected to rise by another 2.2%, and consumer prices in small island developing States such as Fiji, Mauritius and Jamaica are expected to rise by 7.5%.
“The impact on prices in developing countries, especially small island developing States, is five times higher,” said Shamika Sirimanne, head of technology and logistics at the United Nations Conference on Trade and Development. “This is a real worry.”
With prices of everything from steel to energy soaring, the central bank is judging whether inflation is likely to be resolved once the supply chain issues are resolved.
Britain’s October inflation rate jumped to 4.2%, the highest level in nearly a decade, adding to the pressure on the Bank of England to raise interest rates. In the United States, consumer prices rose by 6.2%, the fastest increase since 1990, while the Eurozone inflation rate reached a 13-year high of 4.1%.
Jan Hoffman, head of trade logistics at UNCTAD, said the shipping industry tends to downplay its contribution to inflation. Executives often mentioned that it only costs a few cents to send a pair of shoes from China or a bottle of wine from Australia to Europe or the United States, implying that multiple jumps are relatively insignificant for consumers.
But Hoffman said that the large amount of cargo transported in containers makes the soaring freight rate related to the global inflation debate.
“If we look at the inflation targets in Europe and the US, 1.5% is important,” he said.
The impact of freight costs on the price consumers pay varies from product to product. According to the report, the cost of products supported by complex global supply chains such as computers and cheaper bulky items such as furniture and textiles may increase by at least 10% due to rising transportation costs.
As the peak season is over, container freight rates have declined in recent weeks, but they are still very high.
Maritime consulting firm Sea-Intelligence predicted this week that due to the severity of the supply chain crisis, it may take up to 30 months for rates to return to normal.
Sirimanne warned that further integration of logistics by lucrative ocean carriers could make higher shipping prices “more sticky.”
She urged governments to support Covid-19 vaccination efforts in developing countries to help ease supply chain and pricing pressures.