Shipping costs add to near-term global inflationary pressures

SUPPLY-CHAIN bottlenecks in global shipping and semiconductor markets are adding to near-term pressures on inflation, amplifying the impact of higher commodity prices and base effects from price falls in spring last year.

Nevertheless, Fitch Ratings noted that global manufacturing demand is recovering strongly, reflecting buoyant demand for electronics and other durable goods from homebound consumers in addition to the surprisingly resilient 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,” the international rating agency pointed out in its latest Economics Dashboard.

In this regard, Fitch Ratings observed that container ship charter rates have increased four-fold on some routes.

“The recent temporary closure of the Suez Canal has intensified bottlenecks,” justified the rating agency.

“Global semiconductor industries are also struggling to meet rapidly expanding demand. Supply delays have reached record levels, according to some business surveys.”

Fitch Ratings expects these supply bottlenecks to ease in 2H 2021.

“Underlying inflation rates in the services sectors and wage growth remain low in the US and Europe,” noted the rating agency.

“Nevertheless, near-term upward pressures on prices are significant and growing. Balance-of-payments data show the cost of shipping freight transportation services were US$32 bil in the US in 2020 (0.2% of gross domestic product [GDP]) and 51 bil euro in the 27 European Union countries (EU 27) in 2019 (0.4%).” – April 2, 2021


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