The numerous traffic jams and delays of container ships in the world’s oceans could have a negative impact on consumer prices, according to a current analysis by Commerzbank. It is said that one in twelve containers worldwide is currently stuck in traffic. This especially increases container freight rates on the route from China to Europe.
So-called spot rates, that is, the costs of transport spaces on container ships auctioned at short notice, are currently around $7,000. Before the coronavirus pandemic it cost between $1,000 and $2,000.
Price shock does not manifest itself immediately
Spot prices can also influence long-term contracts concluded: “The longer freight rates remain high, the more likely it is that the prices of long-term contracts that large importers enter into directly with shipping companies will also increase.” , writes Commerzbank. Economist Vincent Stamer in the study. In this way the high transport costs could be fixed for a period of approximately one year. “This, in turn, increases the prices of consumer goods and the prices of companies’ intermediate products,” Stamer said. The upheaval in the world’s oceans did not develop immediately, but lasted for several months.
If freight rates remain at this high level, this would suggest an increase in consumer prices (excluding energy, food and beverages) of around 0.25 percentage points for the euro area, it is said. Because wage costs are currently rising sharply and driving up prices for labor-intensive services, this so-called core inflation rate is likely to stabilize at three percent next year instead of the European Central Bank’s target. (ECB) of two percent.
Why are freight rates increasing?
According to the information, the high transport costs are due to the consequences of the attacks by the Yemeni Houthi militia in the Red Sea, which wants to support the radical Palestinian organization Hamas in the Gaza war. Shipping companies are therefore largely diverting their cargo ships around South Africa on routes between East Asia and Europe. This increases travel time on a route by ten to twelve days.
“At first, the container network was able to absorb the load due to the numerous newly built vessels,” said Commerzbank analyst Stamer. “However, delays by shipping giants in the return journey to Asia cause traffic jams and waiting times of several days in front of ports such as Singapore, where a particularly large number of containers are reloaded.” The disruptions are now so great that 40 percent fewer ships are currently crossing the important Strait of Malacca, in the northwest of the Southeast Asian metropolis.
restrictions in the panama canal
But there are other reasons: there is also fog in Chinese ports, heavy rains in Southeast Asia and drought in Panama and the resulting restrictions in the Panama Canal, the experts write. The consequences of last year’s drought could continue to affect shipping this year, canal operator ACP recently warned. Despite the start of the rainy season, “the water problem for Panama and the canal is not over yet.” Since November, the number and length of ships that want to navigate the canal have been reduced.
However, the situation there has improved somewhat: starting July 11, the canal authority will increase the maximum length allowed for ships to 14.6 meters. Starting August 5, 35 boats per day will be allowed to use the waterway. At times the number was reduced to 24.
In addition, there were problems in many ports. “This bottleneck in freight handling adds to increased demand for container shipping,” Stamer said. “Because China is once again exporting many more goods.” Adjusted for prices, Chinese exports have increased about 20 percent from the provisional low in spring 2023. The People’s Republic transports far more than any other country via the container ship network.
