The cost of shipping goods is rising sharply, a trend that is tied to strong demand for discounted Chinese products.
Freight rates have soared by 257 per cent this year, according to an index of eight major shipping routes from Drewry, a maritime consultancy. On one of those routes – Shanghai to Los Angeles – the spot rate for shipping a 40-foot container is roughly US$7,300, up from US$1,965 a year ago.
While costs have surged this year, they are still well below peak levels in 2021, when supply-chain disruptions impeded the flow of goods.
Simon MacAdam, deputy chief global economist at Capital Economics, said there are several contributors to the increase.
For one, there’s been a “boost” in demand for Chinese products, which is partially driven by excess production in China’s manufacturing sector and subsequent discounts for those goods, Mr. MacAdam said in a recent report. As well, far fewer ships are travelling through the Red Sea because of attacks by Houthi rebels; instead, ships are taking longer routes that tie up resources.
Mr. MacAdam also said it’s possible that retailers are ordering their Christmas and holiday goods early to avoid any disappointments.
Shipping costs have risen enough to affect global inflation to a small degree, the Capital Economics report said. But “if rising shipping costs partly reflect a shift in demand towards discounted Chinese goods, then the net boost to consumer prices will be offset by cheaper imports.”
Decoder is a weekly feature that unpacks an important economic chart.