Inflation is disturbing everything. For example, if you plan to build a home in 2021 at the cost of $235, now the cost will be 1.5x or 2x. According to a shipping company in Karachi, the disturbance of supply and demand has continued to push prices. Likewise, shipping containers also have a great impact on inflation. It means that there is not a single reason for inflation.
The shocking pandemic has affected shipping through the sea in which 40-foot-long steel containers are used. It’s the most convenient and great way to ship thousands of containers at a time. This guide will show you how the shipping container impacts inflation, other reasons for inflation, and many important things about it. Let’s begin!
Inflation Stats in 2021
Due to the increase in fuel costs, the cost of shipping goods is increasing day by day. According to the stats, the biggest jump in prices was made in April and May. The inflation spike by about 5.4% in June compared to the previous year. It’s important to say that product shortage was one of the primary reasons in that story. When the demand leads the supply, the price increases, disturbing the overall supply chain.
During the pandemic, people shifted their modes of operation, and the same goes for services to goods. People utilized sea shipping consistently, leaving no space for more containers on the ship. In short, the container ship capacity is one of the main reasons pushing the freight rates to record highs.
According to the Freights Baltic Index, a ship costs $7000 from Asia to the US West. It increased the price by 4x to the prices in May 2020. Here many other premium fees are excluded from making the space secure, and many businesses pay almost $20,000 per container. This scenario not only affected the logistics costs for importers but also increased the production costs for the consumers.
Global Freight Rates Contribution To Inflation
In 2019, a business needed to spend $8B for sea logistics compared to 1.07% of total US spending and 0.33% of the services. Just after 1 year, the cost to ship goods by sea has increased by 200%. It means the consumer had to spend 2.14% of the total spending on goods and 0.66% on services. The total inflation was about 5.4% last year.
It is to be noted here that the hikes in everything are due to the increase in the price of ocean logistics. On a serious note, freight rates are one of the major cases to shift the price from the lower to the highest point in goods and services. Nowadays, the prices change as the new ship hits the water for shipments.
Shipping Company Profits
The shipping companies are making a huge profit these days, and it has reached up to $59.3 billion. This amount is only in the first quarter of this year. A logistic expert, Job McCown, said that the profit was $19.1 billion in the same period last year. In this way, you can get an idea about their profit margins.
Denmark Maersk is the biggest container line in the world and provides almost 17% of the shipment services. They have made a record earning only in three months of 2022. The revenue increase is about 55%, from $19.3 billion to $30 billion. It’s all due to the fuel prices, shipment charges, and other security services of the goods.
Let’s have a look at other stats of a similar company named Mediterranean Shipping Company (MSC). This company has taken over Maersk and become the largest container service company of the year. However, they decline to share the exact amount of profit publically.
Similarly, U.S President Joe Biden said that it’s all due to the prices which the shipping company charges. Besides the financial performance, they are creating issues that can lead to a crackdown in the future, stopping all the operations and logistics.
When Will Shipping Costs Decline?
Almost 503 used containers were sold last year, which is equal to 71% of the global fleet. Likewise, another sale was done in the first five months of 2022, and 108 containers were sold out. With the increase in shipment demand, MSC purchased 200 second-hand container vessels after August 2020, according to the market analysis. These stats show the demand for logistics and shipment services across the world.
Still, they are signing to buy new and second-hand containers with the increased demand for logistics. Next year many giants will make more profit compared to 2022 by entering some other services. In the United States, a record-breaking 555 containers worth $42.5 billion were booked by the shipping council.
Some of them were the largest size containers ever built (about 400 meters in length). Due to that reason, a cargo ship was stuck in the canal, blocking the Suez Canal last year. It is said that the prices will not come down due to the increased demand for shipment and goods. It may fluctuate a little bit, but they will stay at high lines.
Backlog of Logistics Until 2023
In late October of 2022, Log Aneles (The biggest container port) made twice the overall profit last year. Keep in mind that it’s just an estimate, but the actual amount might be more than this. Suppose they have planned to unload an extra 3500 containers every week; it will be more likely to increase in early 2023.
A report in the United States said that the hikes in shipping prices prevented the global recovery. It’s also said that the prices will get another 1.5x spike between now and 2023. The cheaper good’s price will increase more because they are already poor quality goods. As the prices of the shipment increase, the cheaper goods price graph gets a huge increase in the prices compared to costly products.
This shipping boom is a danger to the world’s economy, allowing people to spend more and more on everything. Another COVID variant is also in the market, which can take it down. Last year, only a few industries were on a platform to protest against the price increases, such as Nestle. According to the U.S inventory-sales, the companies need to restock the goods, which can cause the price to lower.
However, the problem can be increased if the smaller business does not participate on the spot. Large enterprises should play a crucial role in lowering the goods and shipment prices. Otherwise, the circumstances are not in our hands.
In conclusion, everyone should play a crucial role in bringing the prices down. There are a few strategies that can help to control inflation. First, the businesses should contract steady lane volume and only ship goods on off-peak days. Not much, but it will surely lower the prices. For smaller shipments, you should search for a consolidation program near you. Don’t wander into the market but make relationships with the shipping companies to get more discounts. Increase delivery lead time and reduce dunnage to lower the overall prices. If you offer late pick-up times, the freight rates will be lower than normal. So, these are a few strategies that can help you lower the overall prices and control inflation.