The Review of Maritime Transport 2021 report warns the recovery of the global economy is threatened by a high freight rate which is likely to continue in the coming months, adding low-value added items like clothing and textiles are particularly at risk of price rises linked to higher shipping costs
UNCTAD’s analysis shows that the current surge in container freight rates, if sustained, could increase global import price levels by 11% and consumer price levels by 1.5% between now and 2023.
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By GlobalData“The current surge in freight rates will have a profound impact on trade and undermine socioeconomic recovery, especially in developing countries, until maritime shipping operations return to normal,” said UNCTAD Secretary-General Rebeca Grynspan.
“Returning to normal would entail investing in new solutions, including infrastructure, freight technology and digitalisation, and trade facilitation measures,” she said.
What caused the freight rate rise?
Supply chains have been significantly pressured in the second half of 2020 and into 2021 as consumers spent their money on goods rather than services during pandemic lockdowns and restrictions.
This large swing in containerised trade flows was met with supply-side capacity constraints, including container ship carrying capacity, container shortages, labour shortages, continued on and off Covid-19 restrictions across port regions and congestion at ports.
This mismatch between surging demand and de facto reduced supply capacity then led to record container freight rates on practically all container trade routes.
The impact of the freight rate rise
Supply chains will be affected by higher maritime trade costs. Low-value-added items produced in smaller economies, in particular, could face serious erosion of their comparative advantages.
The high freight rate will also impact on low-value-added items such as furniture, textiles, clothing and leather products, whose production is often fragmented across low-wage economies well away from major consumer markets; the UNCTAD predicts consumer price increases of 10.2% on these.
The impact of the high freight rates will not be evenly spread, even within Europe, and will be generally greater in smaller economies.
It is suggested that prices would rise by 3.7% in Estonia and 3.9% in Lithuania, compared with 1.2% in the United States and 1.4% in China. This differential also reflects a greater “import openness”, the ratio of imports to GDP, which is typically higher in smaller economies.
Manufacturers in the United States rely mainly on industrial supplies from China and other East Asian economies, so continued cost pressures, disruption and delays in containerised shipping will hinder production, according to the report.
A 10% increase in container freight rates, together with supply chain disruptions, is expected to decrease industrial production in the United States and the Euro area by more than 1%, while in China production is expected to decrease by 0.2%.
Next steps
UNCTAD urges countries to consider a portfolio of measures that span hard and soft infrastructure and services. Improving the quality of port infrastructure would reduce world average maritime transport costs by 4.1%, while costs would be reduced by 3.7% by better trade facilitation measures and by 4.4% by improved liner shipping connectivity.
It calls on governments to monitor markets to ensure a fair, transparent and competitive commercial environment and recommends more data sharing and stronger collaboration between stakeholders in the maritime supply chain.
The report urges continued monitoring and analysis of trends to find ways of cutting costs, enhancing efficiency and smoothing delivery of maritime trade. It also emphasises the need for smaller economies to diversify by graduating to higher-value-added products to be more resilient to external shocks.
In the medium to longer-term, the maritime supply capacity will also be affected by the transition of the industry towards zero-carbon shipping. To ensure that the necessary investment in ships, ports and the provision of new fuels is not delayed, it will be important for investors to count on a predictable global regulatory framework.
