- The number of vessels passing through the Suez and Panama Canal have dropped by 50%, Apollo’s chief economist noted.
- That has boosted freight costs as vessels reroute and take longer journeys.
- The bottom line is that higher transportation costs are putting upward pressure on goods inflation.
The number of vessels passing through the Suez Canal and Panama Canal have dropped 50% from normal levels, reports Business Insider.
And that risks triggering another run-up in inflation as the price of shipping becomes more expensive, Torsten Sløk warned in a note on Sunday.
“The bottom line is that higher transportation costs are putting upward pressure on goods inflation,” he wrote. That matters because if inflation begins bubbling again, the outlook for Fed rate cuts could be weakened. Here are three charts that explain what’s going on.
Suez Canal slowdown
About 12% of global trade passes through the Suez Canal, according to an estimate from the US Naval Institute.
“Normally, 200 ships travel through the Suez Canal from south to north over a week, but that number has recently declined to 100,” Sløk wrote.
The trouble in the Suez Canal has been ratcheting up as Yemen-based Houthi rebels have been launching attacks against ships in the Red Sea, forcing some ships to take longer — and costlier — detours. The ruckus has bled chaos into oil markets and even trickled into other commodities, upending coffee trade flows.
Panama woes
What’s slowing down shipping in the Panama Canal is different. A severe drought has dried up the waterway, creating a massive snarl-up because fewer vessels are now able to transit through the trade corridor at a time.
The canal normally handles about 5% of global trade flows. But due to the traffic-jam, northbound traffic has fallen to 45 ships per week from the typical 90 ships.
The waterway is so clogged, that authorities have opened up auctions for companies to bid on options to jump the line. One Japanese shipping company paid up to $4 million to skip the line in November.
Inflation déjà vu
The slowdown has boosted the cost of shipping: vessels have had to reroute and add several days to their voyages, which makes carting around global goods a lot more expensive. Sløk noted that freights traveling from Shanghai to Rotterdam have seen costs triple.
Another tracker, the Drewry World Container Index, shows container costs have surged by 173% since the beginning of December. And although goods inflation has been tumbling, higher shipping costs could send that back up again if they continue to follow recent trends.
Shipping costs could trigger another inflation wave
Strategists at Macquarie have noted that the shipping woes are reminiscent of pandemic-era supply shocks, which sparked a dizzying spell of inflation that has yet to completely cool.
“Shipping freight rates foretold the future inflation-disinflation cycle in late 2020 to mid-2022, and are thus worth paying attention to,” analyst Thierry Wizman wrote in a note on Friday.
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Source: Business Insider
