High freight rates cast a shadow over economic recovery

Increase (annual) in prices relative to the Global Index container loading

From 03-Sep-2020 to 03-Sep-2021

$10.000

$7.500

$5.000

$2.500

01-Nov-20 01-Jan-21 01-Mar-21 01-May-21 01-Jul-21 01-Sep-21

Fuente: Freight Baltic Index (FBX).

Note: The price increases (annual: September 2020 to September 2021) shown in the graph are related to the Global Container Freight Index (USD values).

High freight rates overshadows the economic recovery

The United Nations Conference on Trade and Development (UNCTAD) warned that “global consumer prices will increase significantly by 2023 until supply chain disruptions, port constraints and port terminal deficiencies are addressed.

Thus, the current increase in container freight rates, if sustained, could increase world import price levels by 11% and consumer price levels by 1.5% by 2023.

“The current increase in freight rates will have a profound impact on trade and undermine socio-economic recovery, especially in developing countries, until shipping operations return to normal,” said UNCTAD Secretary-General Rebeca Grynspan.

“Getting back to normal would mean investing in new solutions, including infrastructure, freight technology and digitization, and trade facilitation measures,” she said. The impact of high freight rates will be greatest in Small Island Developing States (SIDS), which could see import prices rise by 24% and consumer prices by 7.5%. In the Least Developed Countries (LDCs), consumer price levels could increase by 2.2%.

Supply chains will be affected by the rising costs of maritime trade. Low value-added goods produced in smaller economies, in particular, could suffer a serious erosion of their comparative advantages.

A 10 percent increase in container freight rates, coupled with supply chain disruptions, is expected to lower industrial output in the United States and the euro area by more than 1 percent, while in China output is expected to decline by 0.2 percent.

UNCTAD urges countries to consider a package of measures covering tangible and intangible infrastructure. Improving the quality of port infrastructu-

re would reduce average global shipping costs by 4.1%, while costs would be reduced by 3.7% with trade facilitation measures and by 4.4% with improved liner shipping connectivity.

Forecast

ECLAC estimated that the value of regional exports of goods would grow by 25% during the current year, following a 10% drop in 2020, driven by a 17% growth in prices and 8% in quantities shipped out of the region.

The UN agency stresses that the increase in exports of goods was mainly due to higher commodity prices, especially minerals, hydrocarbons and agroindustrial products, rather than an increase in the volume exported.

It also indicates that regional exports of services continue to fail to recover from the drop they suffered due to the coronavirus pandemic.

“In particular, regional dependence on tourism far exceeds the world average, so the uncertainty about the reopening of this sector negatively conditions the prospects of several economies, especially in the Caribbean,” ECLAC warns. “In sum, the recovery of regional trade in 2021 shows important weaknesses”.

In relation to this last point, the agency calculates that the global average cost of container freight by sea has risen by more than 660% from June 2019 to date.

On the other hand, the value of regional imports of goods would register an increase of 32% with an expansion of 20% in volume and 12 % in prices.

Looking ahead to 2022 forecasts, the agency projects growth in the value of regional exports and imports of 10% and 9%, respectively.

The highest trade activity was recorded with China and at the regional level. The projected annual variation in regional exports to the Asian country is 35%, followed by 33% intra-regional, and a growth in shipments of 23% to the European Union and 19% to the United States.