Shipping Cost Increases Causing Hikes in Consumer Goods Prices
July 19, 2022
Value chains and container shipping are faced with major disruptions while many countries are looking for alternative supplies of grain, gas, and oil. According to UNCTAD, the Ukraine – Russia conflict has put a significant strain on the Black Sea region and logistics and trade in Ukraine, raising shipping costs globally and increasing demand for ships. A recent report by UNCTAD notes that the country’s trading partners have been forced to turn to other regions for imported commodities. The report concludes that the conflict has exacerbated other challenges such as port congestions and the prolonged Covid-19 pandemic.
Reasons for Value Chain Disruptions
There are multiple reasons for global value chain disruptions, among which higher fuel prices and insurance costs, trade restrictions, destruction of key infrastructure, and the halting of Ukraine’s port operations. Additionally, transit costs and times and shipping distances have increased due to the ongoing conflict.
Shipping Cost Hikes Causing Food Price Increases
Grain is shipped over longer distances, thus causing food price increases, along with the fact that grain demand exceeds supply. Shipping costs and grain prices have been rising over the last two years but the Ukraine -Russia conflict has further exacerbated the situation. The UNCTAD report shows that shipping prices for grains and other dry bulk cargo have gone up by nearly 60 percent between February and May alone. The price increase would result in a close to 4 percent increase in food prices not only in Europe but globally.
Also, the Russian Federation is a major exporter of fertilizers and fuel, both of which are major inputs for farms. Supply disruptions would result in higher prices and lower grain yields, threatening food security in highly food-import dependent and vulnerable countries.
Higher Energy Price Also Causing Price Hikes
The Russian Federation is major exporter of gas and oil, with export partners such as Germany, the Netherlands, Poland, Italy, and the United Kingdom. Due to logistical issues and trade restrictions, gas and oil prices have increased, forcing EU countries to look for alternative sources of fuel.
The daily rates for small tanker hire, which are used in the Mediterranean Sea, Baltic Sea, and Black Sea have skyrocketed. Small tankers are mainly used for regional oil shipping. Energy price increases have also resulted in bunker price increases, resulting in higher shipping costs for sea freight in Europe. Data from the UNCTAD report shows that the cost of low-sulfur oil has gone up by 64 percent from January to May 2022.
Taken together, high grain demand and higher energy prices mean higher consumer good prices while threatening food security and widening the poverty gasp.
What Should Be Done
Collaboration between port and vessel flag states, European logistics actors, and other stakeholders is needed to provide key services such as regulatory compliance certification, health services for crews, and bunkering supplies. This could have a positive effect on operations, insurance premiums, and shipping costs.