22 February 2022
4 mins clock icon

High shipping prices weighing on global recovery

Elevated costs for shipping goods are driving up inflation around the world

By Daniel Richards


Under capacity in the global container shipping sector has, alongside shortages in semiconductors (the so-called ‘ships and chips’ issue) been a major driver of some of the supply chain issues and related higher prices that have been seen as the global reopening from the pandemic has gathered pace. These issues have already arguably held back the recovery and are contributing to the cost-of-living crisis that is starting to weigh on the global economy more forcefully. Looking ahead, a normalisation of consumer behaviour, especially if dampened by higher prices more generally, should ease some of these pressures. Nevertheless, shipping costs are unlikely to rapidly return to pre-pandemic levels, and while the inflationary pressures might dissipate, high prices will continue to erode firms’ margins if they absorb these costs themselves.

Having endured a parlous decade or more, the global container shipping sector has enjoyed an especially buoyant period since the worst of the Covid-19 pandemic crisis began to ease in mid-2020. Box shipping had long been struggling with overcapacity having embarked on a spending spree on new boats just as the global financial crisis hit and the pace of globalisation slowed dramatically. The tonnage coming online had exceeded demand, raising competition and driving freight prices lower. This in turn saw profits squashed and forced a period of consolidation between firms in recent years, in a sector which was already highly consolidated.

However, the seismic shift in spending forced by the pandemic has turned the situation around completely. Bereft of opportunities to spend on services through successive periods of lockdowns and general restrictions on movement and activity, consumers in developed markets in Europe, North America and elsewhere spent liberally on consumer goods instead. This drove a massive surge in demand for shipping services as volumes surged, with the number of TEUs transported on the Asia-North America route in 2021 27.3% higher than in pre-pandemic 2019. The surge in demand is not only leading to shortages of ships, but containers themselves have been in short supply, while ports around the world have struggled to cope with the heavier flow of traffic – especially when occasionally hit by community outbreaks of Covid-19, as was the case in Shenzen.

Shipping volumes rising sharply

Source: Bloomberg, Emirates NBD Research

The effect of this in a notoriously slow-to-adjust industry was to send freight transport prices through the roof, and this was starkly illustrated by the sharp increase in the industry segment benchmark, the Shanghai Containerised Freight Index (export), which has risen more than five-fold over the past 18 months or so. From its inception in late 2010 until June 2020 the index had averaged just 922. Since then, it has climbed to a peak of 5,109 in January, before falling back modestly to 4,980 on the most recent reading on February 11 (though this is likely the seasonal post-lunar new year lull rather than the start of any more fundamental reversal). Maersk, the second-largest container shipping company in the world by TEU capacity, made a before-tax profit of USD 18.7bn in 2021, broadly equivalent to the previous decade’s earnings, and it expects to pocket a similar sum this year.

Shanghai containerised freight index

Source: Bloomberg, Emirates NBD Research

While a boom-time for shipping companies, these shortages and sharp price rises are weighing on the global recovery more generally. Issues around shipping have been highlighted in a succession of PMI surveys from countries around the world as holding back output or driving up input prices for firms, and in many cases these are starting to be passed onto the consumer. As such, this is contributing to the general acceleration in price growth that has seen US y/y CPI inflation climb to 40-year highs in recent months. According to the detailed CPI report, Final demand transportation and warehousing services prices in the US were 15.7% higher in January this year compared to January 2021.

While survey respondents in the UAE have apparently been absorbing the price pressures themselves to date, this has implications for growth through other channels, with employment for instance not having kept pace with the growth in output.

Container shipping orderbook, % global fleet

Source: Bloomberg, Emirates NBD Research

In terms of the inflationary pressures, these should still ease off this year, with price rises to the level seen over the past 18 months unlikely to be repeated. Nevertheless, prices are likely to remain high through most of this year at least, before potentially providing a deflationary hand to importers and exporters by 2023 as consumption normalises (potentially accelerated by rising inflation) and delays are ironed out. It is worth noting that since the surge in shipping prices began, firms have been rushing to order new tonnage, with the container ship orderbook rising from 8.0% of the global fleet to 20.3% presently. Given the time it takes to bring these vessels online – especially in the age of mega vessels of 20,000 TEU capacity and more – it remains to be seen how well demand has held up when they are launched. However, even these multi-year highs remain far off the 57% orderbook seen just prior to the GFC, so the decade of cheap shipping seen following the last crash appears some way off for now.

Written By

Daniel Richards Senior Economist

There was an error during your feedback!

Your feedback is valuable to us and will help us improve.

Daniel Richards

Related Articles

Subscribe to our newsletter and stay updated on the markets

There was an error during your newsletter subscription!

Please try again to stay updated with all the latest financial news and valuable insights.

Thank you for newsletter subscription!

To stay updated with all the latest financial news and valuable insights.