Inflation Grows With Rising Freight Rates
Inflation continues to rise as the costs of transportation and warehousing goods for final demand has increased by more than 18% this November. Comparing this data to earlier years shows this is the largest annual increase since 2009.
Covid-19 Contributes to Inflation Tensions
Photo Courtesy of Daniel Schludi
Materials like iron ore, steel, and even finished products ready for market have to move as raw materials that are processed in global manufacturing. All companies have to factor in the cost of transporting goods, and this is typically a fraction of the finished product’s price. However, shipping containers and gasoline are more expensive, and truck drivers are in short supply, causing prices to surge for consumers and businesses alike.
The Covid-19 pandemic began the surge in transportation costs, and this could take years to bring back down. Many companies were already dealing with high raw material prices. Now with the new freight cost prices, some CEOs predict the inflation could continue into 2023. The Omicron variant causes even more tension in the liner industry because ports and shippers have to follow lockdown protocols in China.
Higher Prices Could Slow Down Product Demand
The cost of transporting freight across oceans in November saw a 26% increase compared to last year’s prices. This is the biggest annual increase in data since 1988. Higher than usual freight costs are contributing to inflation issues that negatively impact consumers’ incomes and raise costs for companies. An increase in demand from earlier in the year caused freight cost increases, as producers and merchants struggled to find products. Even freight costs for trucks are up more than 16%, and shipments by air and rail have also seen large increases.
Photo Courtesy of Ellis Garvey
For years, a handful of large carriers have dominated key shipping routes, making room for fewer vessels to sail between ports. This leaves cargo owners paying an extreme price to find the space to transport their goods. Companies like Walmart and Home Depot decided to charter their own boats this year in order to ship their products. Some economists are unconcerned about extra costs, arguing that the economy will rebound and work itself out over time as higher prices slow down demand.
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