Shipping costs at 18-month high – threatening to impact UK inflation rate

An index that compares how expensive it is to move freight from Shanghai to Europe shows how the cost has risen again – with the ongoing crisis in the Red Sea to blame. Analysts are concerned it could cause the rate at which prices of goods on UK shelves go up to rise again.

The price of shipping has reached an 18-month high – threatening to impact the falling inflation rate.

It is now more expensive to ship a typical container on a key shipping route than when Houthi militants first started attacking boats in the Red Sea late last year to prevent ships docking in and exporting from Israel.

An index that measures the average cost of a 20ft container being shipped from Shanghai to Europe – and is the most widely used measure of freight cost – has reached $3,949 (£3,102).

 

The cost of container shipping remains below its recent record highs

The Shanghai Containerised Freight Index (SCFI) has risen sharply in the last month according to data given to Sky News by global logistics company, DSV.

Not since the early days of September 2022, when global supply chains were recovering from the blockage of the Suez Canal, has the cost been so high, at $4,252 (£3,341) a container.

Money latest: UK suffers biggest rise in unemployment of any OECD country

The Suez blockage by the Ever Given container ship which ran aground in 2021, kickstarted a steep rise in shipping costs as goods could not move freely along the vital shipping artery, causing chaos at ports and chocking supply lines.

Boats having to take alternative journeys and being diverted also brought shipping costs up.

Why it matters

It was this wave of supply chain woes that brought about part of the first shock to the economy that caused inflation, the rate of price rises, to go up.

The economy has recovered in large part from shocks – including the energy price hikes brought about Russia’s invasion of Ukraine – which resulted in inflation reaching a 41-year high of 11.1% in October 2022.

While inflation has dropped significantly – to 2.3% at the latest reading – expensive shipping could bring the rate up.

Most goods on UK shelves spend at least part of their lifetime at sea, so importers having to spend more to get goods to the UK could mean consumers pay more at the tills.

Why it’s happening – and prices could remain high

Last week, the world’s second-largest shipping container firm Maersk said it expects to have even higher profits than first thought on the back of demand and disruption.

The Red Sea “ongoing crisis” and the “ripple effects on global supply chains” are part of the market, it said.

Business will continue to benefit, it added.

Maersk said: “The ongoing threats to commercial vessels in the Red Sea and growing supply chain bottlenecks indicate that this situation won’t improve soon. More capacity than expected will be needed to resolve these issues and stabilise the global supply chain.”

The Floating Traffic Jam That Freaked Us All OutThe coronavirus pandemic schooled the world in the essential role of global supply chains. Have we learned anything from it?

By Peter S. Goodman
Peter Goodman is the author of the forthcoming book “How the World Ran Out of Everything: Inside the Global Supply Chain,” from which this article is adapted.

Published June 2, 2024
Updated June 3, 2024

Southern California appeared to be under siege from a blockade.

More than 50 enormous vessels bobbed in the frigid waters of the Pacific Ocean, marooned off the twin ports of Los Angeles and Long Beach, Calif. As days stretched into weeks, they waited their turn to pull up to the docks and disgorge their cargo. Rubberneckers flocked to the water’s edge with binoculars, trying to count the ships that stretched to the inky horizon.

This was no act of war. This was what it looked like when the global economy came shuddering to a halt.

It was October 2021, and the planet had been seized by the worst pandemic in a century. International commerce was rife with bewildering dysfunction. Basic geography itself seemed reconfigured, as if the oceans had stretched wider, adding to the distance separating the factories of China from the superstores of the United States. 

Given the scale of container ships — the largest were longer than four times the height of the Statue of Liberty — any single vessel held at anchor indicated that enormous volumes of orders were not reaching their intended destinations. The decks of the ships were stacked to the skies with containers loaded with the components of contemporary life — from clothing and electronics to drums full of chemicals used to concoct other products like paint and pharmaceuticals.

Among the ships held in the queue was the CSCL Spring, a Hong Kong-flagged vessel that was carrying a whopping 138 containers from Yihai Kerry International, a major Chinese agricultural conglomerate. Together, they held 7.3 million pounds of canola meal pellets — enough animal feed to sustain 20,000 cows for a week. Their delay was exacerbating shortages of feed afflicting livestock producers in the United States.

Five ships in this waylaid flotilla were collectively hauling 13 million pounds of Fiji bottled water. More than 17 million pounds of Heineken beer was held up. The Singaporean-flagged Wan Hai 625 was carrying almost three million pounds of polyethylene terephthalate resin, a key element for manufacturing synthetic fabrics and plastic bottles used to package soft drinks — another commodity in short supply. The same ship held 5.2 million pounds of solar panels and 1.6 million pounds of material for chain-link fencing.

By one estimate, the ships waiting off Southern California’s two largest ports were collectively loaded with more than $25 billion worth of goods. And this was a fraction of the wares stranded by a global breakdown that had reached staggering proportions. Nearly 13 percent of the world’s container shipping fleet was floating off ports from China to North America to Europe. Upward of $1 trillion worth of product was caught in the congestion.

All of this stuff was supposed to be somewhere else.

But the docks were overwhelmed by an influx of containers as Americans stuck in quarantine outfitted themselves for the apocalypse, filling their basements with exercise bikes, their bedrooms with office furniture and their kitchens with baking equipment. Most of these goods were manufactured in Asia. The trucking industry complained that it could not hire enough drivers to move this tsunami of product. Warehouses were stuffed to the rafters and short of workers. The railroads — hollowed out by years of corporate cost cutting — were buckling in the face of a surge of demand.

For decades, the world had seemed compressed, the continents bridged by container ships, internet links and exuberant faith in globalization. Now, the earth again felt vast.

——

In the center of the pileup off Long Beach lay the Maersk Emden, a Danish-flagged container ship that stretched 1,200 feet long and 158 feet wide. Freshly arrived from the Chinese port of Ningbo, it was carrying roughly 12,000 containers.

Hagan Walker had only one box on board the Maersk Emden — a 40-foot container logged in the shipping manifest as MSMU8771295. But it held the most important order in the brief history of his start-up.

Mr. Walker’s company, Glo, was based in a small town in Mississippi. It made plastic novelty cubes that lit up when plunked in water. He had recently secured a breakthrough deal — a contract to make bath toys for Sesame Street, including a figurine version of the iconic Elmo. He had planned to debut them during the pivotal holiday season, now only two months away.

Hagan Walker during a creative meeting for Glo Pals.Credit…Whitten Sabbatini

Image Source : https://www.nytimes.com/ https://www.nytimes.com/2024/06/02/business/economy/covid-pandemic-global-supply-chains.html

Like millions of companies, Mr. Walker’s operation depended on two crucial elements: factories in China to make its products and gigantic container ships to carry them to American shores. For decades, this had proved a cheap and reliable way to do business, the means by which major brands and niche players alike had kept the world’s largest economy stocked with everything from oven cleaner to aircraft parts.

But that equation was unraveling, and Mr. Walker found himself confronting the mother of all traffic jams off the coast of Southern California.

As the calendar continued its relentless march toward the holiday season, his Elmo dolls were floating out on the water, castaways during the Great Supply Chain Disruption.

By the time the Maersk Emden joined the floating queue off Long Beach bearing Mr. Walker’s shipment, people from Europe to Africa to North and South America had endured a terrifying scarcity of personal protective gear like face masks and medical gowns. This had forced frontline medical workers to attend to patients with Covid-19 absent adequate protection.

Society had experienced the disappearance of toilet paper from store shelves amid panicked hoarding. Women’s sanitary products had become difficult to find, along with medicines like antibiotics and even aspirin. Meat display cases at supermarkets sat empty. For a time, Grape-Nuts, the popular breakfast cereal, all but vanished, along with the tapioca beads used to make boba tea.

Factories in Asia that manufactured computer chips could not keep pace with a substantial increase in demand, an emergency in an age in which chips had become the brains for all manner of devices. Auto factories from Japan to the United States to Brazil halted production, citing a lack of chips. American car dealers typically held two to three times as many vehicles as they sold in a month. By the end of 2021, their inventory had plunged to a record low — less than half their volume of sales. And as new cars became scarce, the prices of used vehicles exploded.

Medical device manufacturers embarked on a largely futile campaign to shame chip companies into prioritizing their orders over those from smartphone companies like Apple and Google. Major electronics companies began covertly buying old toys and video gaming consoles, breaking apart ancient PlayStations and Barbie accessories to harvest the chips within.

For consumers who never previously had reason to contemplate the intricacies of the global supply chain, all of this was cosmically disconcerting. The shortages of goods conveyed a gut-level affirmation that contemporary life itself had gone haywire, exposing a dark and unsettling truth: No one was in control.

In wealthy countries, society had been steeped in the idea that the internet had transcended the traditional constraints of time and space. You could go online at any hour, on any day, no matter the weather, click here, and then wait for the truck to arrive with your order.

In a world full of grave uncertainty, here was a sure thing.

The supply chain was not just the circulatory system for goods, but also the source of a sense of authority over human circumstance, and a rare unifying aspect of modern existence. In a time of flagging faith in government, skepticism about news media and suspicion of corporate motives, everyone could at least believe in the unseen forces that brought the UPS guy to the door. The links connecting farms, factories and distribution centers to households and businesses had seemed inviolate.

As the supply chain began fraying, urban reality from Minneapolis to Milan was dominated by the ceaseless wailing of ambulances hauling those stricken with Covid-19 to hospitals, where people were dying on gurneys stashed in corridors, the rooms overflowing, the supply of ventilators exhausted. From San Francisco to Stockholm, people were taking their last breaths alone in nursing homes, without saying goodbye to their children and grandchildren. Every day brought grim reports of a rising tide of death that eventually took the lives of nearly seven million people worldwide.

——

Over recent decades, multinational companies from North America to Europe to Japan had placed their fate in a ruthless sort of efficiency. They had steadily entrusted production to factories around the globe, and especially to plants in China, chasing lower costs and fatter profits. 

And they had behaved as if this strategy was devoid of risk, as if China’s industrial parks might as well have been extensions of Ohio and Bavaria. They either did not know or did not care that the shipping industry was basically a cartel, operating largely beyond the oversight of any government watchdog.

Once their products reached American shores, companies relied on transportation networks that depended on millions of workers who submitted to dangerous and lonely jobs, even as their pay and working conditions were downgraded. In constructing a supply chain governed by the relentless pursuit of efficiency, trucking and railroad businesses treated their workers as if their own time was both limitless and without value, deserving of no compensation for hours stuck waiting for the next load.

From the railroads to trucking firms to warehouses, major companies in the supply chain had long treated their workers as costs to be contained rather than human beings with families, medical challenges and other demands. Employers assumed that they did not have to worry about running out of laborers, even as they engaged in wanton exploitation. At the same time, decades of zealous reverence for deregulation as the solution to nearly every problem served to cede economic fate to a handful of companies that dominated key industries.

In Washington, both major political parties had long placed faith in the fantastical notion that gigantic companies left to seize commanding holds over their markets would yield greater efficiency.

The pandemic laid bare the consequences of relying on faraway factories and container ships to keep humanity supplied with goods.

It exposed as reckless the world’s heavy dependence on a single country — China — for critical products like protective gear and medicine, especially as Washington and Beijing were locked in a trade war.

It revealed the risks of leaning on transportation systems staffed by people whose wages and working conditions had been decimated by cost cutting.

Unregulated behemoths left to dominate markets in the name of efficiency turned out to yield results that were efficient only on Wall Street.

And then broad chaos in the global supply chain helped deliver another economic affliction: inflation.

By early 2022, in the name of snuffing out price increases, central banks around the world would begin lifting interest rates. This would foist higher borrowing costs on homeowners and credit card holders. It would threaten ordinary workers with joblessness while depressing stock prices. Though economists debated the causes of inflation, part of the blame clearly fell on the reality that astonishing quantities of goods were stuck floating off ports.

——

By early 2023, the worst disruptions of the pandemic years had subsided. The floating traffic jams had all but disappeared, shipping rates had plunged and product shortages had eased. Yet the same foundational perils remained, awaiting an inevitable future disturbance.

The global economy has entered a new era of enduring volatility. As climate change alters the natural realm, the global supply chain will be subject to new rules and a constant reassessment of risks. Russia’s assault on Ukraine has enhanced the prospect of the world’s splintering into rival camps, complicating the geography of international trade. China and the United States appear locked in a cold war whose consequences are playing out around the globe, reshaping alliances, trade pacts and fundamental understandings about the nature of international engagement.

To meet the challenge of the next disturbance, which we can be certain is coming, we need to grapple with how we got here. We need to understand how the supply chain became so complex, extended and centered on a single country. And we must reconfigure the supply chain to safeguard society through greater resilience.

The globalization to which we have become accustomed was propelled by an especially intoxicating form of efficiency, a concept known as Just in Time, or lean manufacturing.

But the shortages of the pandemic have prompted some companies to recalibrate, building up inventories as they pivot from Just in Time to Just in Case.

As the United States and China treat each other like rival powers, multinational companies have shifted some factory production to other countries like Vietnam. American businesses are setting up factories in Mexico and Central America to retain low-cost manufacturing without having to contend with the vagaries of the Pacific Ocean. And some companies are embracing so-called reshoring, bringing factory production back to the United States.

At the end of the harrowing journey of the past four years lies one singular truth: Humanity has come to depend on a disorganized and rickety global supply chain for access to the products of our age, from lifesaving drugs and computer chips to toys and games. The system relies on myriad forms of labor exploitation, which has made it perpetually vulnerable to breakdown. And it has been constructed as a means of rewarding the investor class, often at the expense of reliability.The Great Supply Chain Disruption is not some curious piece of recent history. It is a preview of the dysfunction that surely lies ahead if we fail to get the machine in order.

A woman and her grandson outside the container yard at the Port of Los Angeles.Credit…Mark Abramson for The New York Times

Image Source : https://www.nytimes.com/ https://www.nytimes.com/2024/06/02/business/economy/covid-pandemic-global-supply-chains.html

Article Source : https://www.nytimes.com/ https://www.nytimes.com/2024/06/02/business/economy/covid-pandemic-global-supply-chains.html

What happens when the Houthis stop shooting

Andrew Craig-Bennett gives his take on shipping and the Middle East.

Well, isn’t life just wonderful! We have, for most practical purposes, one of our forebears’ favourite things, a Suez Canal closure! Just when the freight markets ought to be heading downwards, we are having a splendid time, because this closure has now gone on for long enough for our very favourite thing, port congestion, to kick in along with lots of out-of-position boxes, for those of us in the box business, nicely in time for our industry’s favourite party, Posidonia.

It’s time to rain on the parade.

We must all remember that, officially at least, this party can be stopped faster than most. President Biden took a shot at stopping it three days ago. He might succeed. If the Houthi crime family (that is what they are, a crime family, not “rebels”) run out of excuses for shooting randomly at ships (and it is random) the party is over. If Israel and Hamas stop shooting at one another, the Houthis run out of excuses. It will take a few weeks to get ships and cargoes back into their usual positions, but the party will be over.

Once this happens – and it could happen at any moment now – we go back to normal. Too many ships on order, the Great Fuel Muddle and a nagging feeling that world trade might not keep growing in the way that we are all used to, in terms of ton-miles by sea, because nation is, shall we say, less inclined to speak peace unto nation.

We don’t know what the fuel of the future is, but we know what the fuel of the next 10 years is; it’s dual fuel. Which helps nobody to plan anything, much. Dual fuel can mean a ship which actually can close and open a few valves and change fuel, or it can mean the footings for the tanks for the other fuel have been included in the block sections. In our business, we generally mean the latter, and we hope that nobody asks exactly what we do mean.

World trade might not keep growing in the way that we are all used to

The shipping industry hasn’t made much fuss about the Houthis firing assortments of missiles at ships because, let’s face it, this suits everyone who isn’t actually getting shot at, and that’s an awful lot more people than are getting shot at.

The Houthis have shown themselves so ignorant of, and so careless about, who owns what ship and which ship is carrying what to where, that when (and as noted it could be any day now) their excuse for firing missiles at completely innocent seafarers is taken away from them, nobody is going to trust them anyway.

We know what this crime family really want. They want to imitate the old Barbary pirates and charge a toll for innocent passage through “their” waters and perhaps they fancy a little extra piracy on the side, into the bargain, kidnapping crews and holding them to ransom. They are enjoying themselves at the moment; they have quite literally got away with murder, and who is going to tell them to stop?

I have no trouble believing the Islamic Republic of Iran when their Revolutionary Guards tell us that they cannot control the Houthis. That’s obvious. The Iranians can supply them with arms, but they cannot make them stop until those arms run out. The Iranians can stop the supplies, but that will take weeks and months, and we all know that the arms trade finds unexpected paths to deliver killing implements anyway.

This gives the regular merchant shipping industry a dilemma. Do we really (really?) want the Houthis to stop? Our distant ancestors were pretty relaxed about paying off the Barbary Corsairs until the brand new American republic came along and had no money to buy them off with, so they fought them.

The same probably applies here. The Houthis will probably be around until they really annoy someone, and get invaded.

Development Work On Bali’s Massive Toll Road Project Restarts This Month

In June 2024, further land acquisition processes will be allowed to be continued after nearly two years of delays and postponements. While land acquisition work gets underway, government officials have voiced their hopes that construction will be underway once again in September of this year.

Wayan Koster, who was Governor of Bali until the elections in February this year, has spoken to reporters about developments on the project.

Koster told the media, “The clearance process has started, and construction is expected to start in September. This is all the central governments. At the time, as governor, I only issued a determination of the location, the route, and the roads to be followed according to the results of the study from the ministry.”

The Gilimanuk-Medewi Toll Road will connect three regencies, namely Badung, Tabanan, and Jembrana. The mission is to connect the center of the island to the far west, thus improving connection from Denpasar through to East Java and beyond.

As plans show, the Gilimanuk-Medewi Toll Road will run for 96.84km and run through 50 Balinese villages. Communities and land owners are already in talks with developers about who and how people will be affected by the land acquisition for the mega-development project.

It has long been the position of Minister Basuki Hadimuljono, Indonesia’s Minister for Public Works and Public Housing, that the Gilimanuk-Mengwi toll road is a national strategic project (PSN) that must be urgently implemented.

The tender process has now been brought to a close, with the government now accessing applications and bids for the project work.

Local reports show that the work will be completed as part of the PPP scheme with a value of IDR 22.839 trillion along a 96.84 km road and a concession period of 50 years.

Minister Hadimuljono told reporters in Bali, “We took over. [the tender process] And now our auction has been solicited and initiated by the government. It is being auctioned by the government to get new investors who have nothing to do with the previous ones.”

“That is the condition. Hopefully, the PPJT (Toll Road Concession Agreement) will be signed at the auction in September. Once the PPJT has been signed, then construction will proceed.”

The tender and bid process had to be opened up again after previous investors failed to come up with the capital needed to keep the project moving

The Gilimanuk-Medewi Toll Road is not the only sizeable development project in Bali to be put back on the cards in recent weeks. Conversations about the development of North Bali International Airport have once again become a hot topic on the island.

With the incoming President Prabowo Subianto making some serious promises during his election campaign reading the development of North Bali Airport, investors and the company behind the project have started to talk publicly again about how the airport would bring benefit to the northern regions of the island.

The North Bali International Airport, which is set to be built on reclaimed off-shore land in Buleleng Regency, is set to be home to the airport itself, an aerocity, an aerotropolis, a power plant, and much more.

The next five years in Bali are certainly going to be interesting from a development perspective, and only time will tell how this will impact local communities and tourists.

As the Gilimanuk-Medewi Toll Road makes progress, North Bali Airport is back up for discussion; small but significant progress has also been made on the Bali Rail Network Project, where top Ministers have confirmed tax breaks and legislative support to keep the project moving.