Out-of-control shipping costs fire up prices

The skyrocketing price of shipping goods across the globe may hit your pocket sooner than you think— from that cup of coffee you get each morning to the toys you were thinking of buying your kids.

Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, a whopping 547 per cent higher than the seasonal average over the last five years, according to Drewry Shipping.

With upwards of 80 per cent of all goods trade transported by sea, freight-cost surges are threatening to boost the price of everything from toys, furniture and car parts to coffee, sugar and anchovies, compounding concerns in global markets already bracing for accelerating inflation.

"In 40 years in toy retailing I have never known such challenging conditions from the point of view of pricing," Gary Grant, the founder and executive chairman of the UK toy shop The Entertainer, said in a interview. He has had to stop importing giant teddy bears from China because their retail price would have had to double to add in higher freight costs. "Will this have an impact on retail prices? My answer has to be yes."

A confluence of factors— soaring demand, a shortage of containers, saturated ports and too few ships and dock workers— have contributed to the squeeze on transportation capacity on every freight path. Recent Covid outbreaks in Asian export hubs like China have made matters worse. The pain is most acutely felt on longer-distance routes, making shipping from Shanghai to Rotterdam 67 per cent more expensive than to the US West Coast, for instance.

Often dismissed as having an insignificant impact on inflation because they were a tiny part of the overall expense, rising shipping costs are now forcing some economists to pay them a bit more attention. Although still seen as a relatively minor input, HSBC Holdings Plc estimates that a 205 per cent increase in container shipping costs over the past year could raise euro-area producer prices by as much as 2 per cent.

At the retail level, vendors are faced with three choices: halt trade, raise prices or absorb the cost to pass it on later, all of which would effectively mean more expensive goods, said Jordi Espin, strategic relations manager at the European Shippers' Council, a Brusselsbased trade group that represents about 100,000 retailers, wholesalers and manufacturers. "These costs are already being passed to consumers," he said.