Shipping Disruptions vs. Inflation: Debunking the Myths

KUWAIT CITY, Jan 8: The Capital Economics research institution dismissed the notion that the rise in shipping costs, resulting from the redirection of commercial ships away from the Red Sea, would contribute to a resurgence of global inflation.

However, the institution indicated in a report that the expansion of the war scope in Gaza to encompass oil-producing nations like Iran could potentially exert inflationary pressures, particularly by elevating energy prices.

The report argued that shipping costs would need to escalate significantly more than the increase witnessed last week to exert a noticeable impact on global inflation levels. Citing the Arab World News Agency (AWP), it highlighted that a 900% surge in spot prices for container shipping in 2021 only led to a marginal increase in global inflation by a few tenths of a percentage point, according to the institution's estimates.

Global shipping costs, the report stated, primarily consist of contract prices spanning a year or more, which exhibit less volatility than the immediate costs associated with securing a container spot on the next available shipment. It explained that the risks leading to shipping disruptions and widespread shortages needed to drive inflation higher were currently perceived as low.

The report emphasized that global supply chains are presently well-positioned to accommodate delays resulting from traffic around the Cape of Good Hope. It noted that stocks of manufactured goods are abundant compared to current demand. Logistics operations managers reportedly state that capacity utilization in the global logistics network is low compared to the levels seen during shipping bottlenecks in 2021.

Even if delayed shipments cause temporary shortages in specific sectors, the report asserted that the current demand environment is not as conducive to higher inflation as observed in 2021-2022. While acknowledging the potential for short-term disruptions, the report concluded that the ongoing shipping challenges were unlikely to derail the downward trajectory of global inflation. However, it cautioned that any significant escalation in military conflict could lead to a rise in energy prices, ultimately impacting consumers.