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Unexpected quick recovery of world trade and container shipping disruptions pushing up shipping freight costs since November
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Container ship charter rates have increased fourfold on some routes, while the recent temporary closure of the Suez Canal has intensified bottlenecks
Supply chain bottlenecks in global shipping and the semiconductor markets are adding to current pressures on global inflation, according to Fitch Ratings.
The credit rating agency in its latest Economics Dashboard said near-term upward pressures on prices “are significant and growing.”
This, it noted, is due partly to the strong recovery of global manufacturing demand, which reflects the buoyant demand for electronics and other durable goods from home-bound consumers.
Also contributing factors to the manufacturing recovery are the surprising resilience of private sector investment in the US and the recovery in China.
“World trade has recovered more rapidly than expected and, in combination with dislocations in the container shipping sector as a result of the pandemic, shipping freight costs have soared since November,” Fitch said.
The company noted that container ship charter rates have increased fourfold on some routes, while the recent temporary closure of the Suez Canal has intensified bottlenecks. Global semiconductor industries are also struggling to meet rapidly expanding demand. Supply delays have reached record levels, according to some business surveys.
Fitch expects these supply bottlenecks to ease in the second half of 2021. “Underlying inflation rates in the services sectors and wage growth remain low in the US and Europe. Nevertheless, near-term upward pressures on prices are significant and growing,” it further said.
Balance-of-payments data show the cost of shipping freight transportation services were US$32 billion in the US in 2020 (0.2% of GDP) and EUR51 billion in the EU27 in 2019 (0.4%), said Fitch.
Photo by Yunsik Noh on Unsplash
