Weekly Updates
Weekly Updates
- Following attacks on commercial shipping in the Red Sea, container ships are diverting to taking the longer Cape of Good Hope route from Asia to Europe. This has provoked suitably sensational comments about the longer time taken and the associated increase in freight costs. It all sounds dramatic and inflationary. It really isn’t.
- If higher shipping rates reflect a wider economic problems like a supply-demand imbalance, they will coincide with (but not cause) higher inflation. Where higher costs are shipping specific, as at the moment, the inflation impact is very small. It is not the value of goods shipped, but the changing cost of shipping the goods that matters. Globally, shipping by sea accounts for less than 0.3% of global economic activity.
- Of course, the European economy is the area most affected by shipping via the Red Sea. However, the contribution of non-EU shipping costs to EU inflation is even less important than the global average suggests. This is not a major part of the inflation calculation.
- It is worth remembering that when a consumer buys something, most of the price is paid for what happens after goods arrive at a port (internal distribution, advertising, wholesale and retail costs, etc.). These higher shipping costs should not be visible to most consumers.
Stay up to date
Stay up to date
