Combination of rise in demand for products as some countries reopen and lockdowns in some port cities mean prices could climb
Last modified on Wed 16 Jun 2021 02.47 EDT
An outbreak of Covid-19 in southern China has combined with the rapid reopening of the world economy and a shortage of shipping containers to cause a surge in transport costs that could fuel inflation and cause shortages of goods across the globe.
China reported 21 new coronavirus cases in the mainland on Wednesday with 15 of them in the vital industrial province of Guangdong where restrictions have been in place for several weeks to contain an outbreak linked to the Delta variant first detected in India.
There are now 150 cases of the variant, mostly in Guangzhou city, and the lockdown has caused the city’s massive port to be severely disrupted. A separate outbreak in neighbouring Shenzhen – not believed to be the Delta variant – has also added to the problem. The ports are the third and fifth largest in the world and shipping costs have spiked as a result.
Transporting a 12.2-metre (40ft) steel container by sea from Shanghai to Rotterdam now costs a record $10,522, which is nearly 300% higher than it was last year, according to Drewry Shipping.
Factory costs in China, the workshop of the world, had already risen 9% in May – the most for more than a decade – because of a rapid increase in demand as the global economy reopens and as glitches in supply chains continue to be ironed out.
Financial markets are also concerned about the spectre of rising inflation after consumer prices in the US last month rose at their fastest rate since 2008 amid a breakneck pace in economic recovery from the pandemic-induced slump.
A boost in demand for goods has helped fuel a rise in the cost of everything from food to cars and household goods.
Investors believe that the US Federal Reserve may see rising inflation as a sign that it has to begin winding down its vast monetary stimulus program and weaning stock markets off years of ultra-low interest rates.
Flavio Romero Macau, a senior lecturer in business at Edith Cowan University in Perth and an expert in supply chains, said the stoppages in China would not normally be a serious problem. But the combination of the other factors meant prices for manufactured goods and commodities could rise significantly over the next three to five years as shipping companies recouped their costs.
“The big players work with contracts set long in advance not spot prices, so the current problems won’t be replicated in higher prices now,” he said.
“But the costs will be increased eventually and this increase will be permanent in the next three to five years because shippers have to get cost back.”
The shipping squeeze was also well under way before the latest China Covid outbreak, as the post-pandemic race to begin transporting goods caused a shortage of containers, not helped by the Ever Given blockage of the Suez Canel in March.
Ports in Guangdong, including Yantian, Shekou, Chiwan and Nansha, have barred vessels from entering ports without advance reservations and will only accept bookings for export-bound containers within three to seven days prior to the arrival of vessels.
Major shipping companies have warned clients of vessel delays, changes to port call schedules, and the possibility of skipping some ports altogether.
The world’s leading container line Maersk said increased the duration of expected delays at Yantian to 16 days from 14 days previously.
“One of the biggest ports in China has basically closed down for close to three weeks. They have some berths in operation, but nowhere near enough”, says Nils Haupt, communications director at the German shipping line Hapag-Lloyd, told the BBC.
Ships were being diverted to other ports including Hong Kong but it would not be enough to get rid of the backlog, he said.
Romero said: “There was such a fast recovery post-Covid, with people spending like crazy on TVs, PlayStations, cars etc, the system is out of balance. Covid has created a big puzzle and it takes a long time to put it back together.”
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