Global consumer prices will rise significantly in the year ahead until shipping supply chain disruptions are unblocked and port constraints and terminal inefficiencies are tackled.

As we know, many ports in Euro and America are still jammed due to the lack of drivers of trucks. Many products are held at the ports, some retail giants such as IKEA and Walmart have bought or rented the vessel to ship their containers directly.

With ongoing pandemic-related delays and closures, non-stop demand for ocean freight from Asia to the US, and a lack of capacity, ocean rates are still very elevated and transit times volatile.

The recovery of the global economy is threatened by high freight rates, which are likely to continue in the coming months.

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.

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. Returning to normal would entail investing in new solutions, including infrastructure, freight technology, and digitalization, and trade facilitation measures.

Everyone is affected, but not equally

The impact of the high freight charges will be greater in small island developing states (SIDS), which could see import prices increase 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 higher maritime trade costs. Low-value-added items produced in smaller economies, in particular, could face serious erosion of their comparative advantages.

In addition, concerns abound that the sustained higher shipping costs will not only weigh on exports and imports but could also undermine recovery in global manufacturing.

The report says sustained high rates are already affecting global supply chains, noting that Europe, for example, has been facing shortages of consumer goods imported from Asia such as home furnishings, bicycles, sports goods, and toys.

According to the report, a surge in container freight rates will add to production costs, which can raise consumer prices and slow national economies, particularly in SIDS and LDCs, where consumption and production highly dependent on trade.

The high rates will also impact 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 analysis further predicts a 9.4% increase in rubber and plastic products, a 7.5% increase for pharmaceutical products and electrical equipment, 6.9% for motor vehicles, and 6.4% for machinery and equipment.

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 containerized 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%.

UNCTAD emphasizes that transport costs are also influenced by structural factors, including port infrastructure quality, the trade facilitation environment, and shipping connectivity, and there is potential for significant improvements.