Sue MitchellSenior reporter Apr 7, 2021 https://www.afr.com/companies/retai...shipping-commodity-costs-soar-20210404-p57ggv Consumers have been warned to brace for higher prices on products ranging from imported food to clothing, footwear, furniture, hardware and toys as a surge in shipping costs adds to pressure on commodity prices. Retailers said shipping costs had tripled in 12 to 15 months while prices for commodities and materials ranging from palm oil and PVC to timber, steel and aluminium had soared due to strong global demand, container shortages and logjams in ports. Spot shipping rates for some retailers have tripled during the pandemic, pushing up the cost of goods. Sam Mooy “There’s talk about inflation being under control, but the reality is there are some cost pressures,” said former Myer chief executive Bernie Brookes, who owns 90 per cent of accessories chain Colette. “We’ve got significant increases in shipping costs and significant increases in commodity prices for raw materials. Labour costs are subdued, but everything else is moving up. There’s no doubt that’s going to result in some pressure on prices in retail, particularly in discretionary retail. “No matter what commodity you look at, whether it’s poly or resin or oil or gas, commodity prices are up and a lot of them impact raw material costs – it doesn’t matter whether you’re producing furniture or handbags or food, there’s no doubt all those are going to be pressured.” Mr Brookes said the cost of shipping containers out of China had risen from $US2000 pre-pandemic to between $US5000 ($6500) and $US6000, and was even higher at the end of January. “We just negotiated forward rates, and prices have come down significantly ... but there’s a lot more undercurrent of inflation than people realise,” he said. The Shanghai Containerised Freight Index, which measures prices from China’s major port to different parts of the world, hit a record $US2900 in January and February, up from $US900 12 months previously, but has since eased to about $US2585. Spike in spot rates The Reject Shop chief executive Andre Reich said spot shipping rates, which retailers are forced to use when they exceed or exhaust contracts, had spiked to $US2500, compared with $US450 to $US500 for contracted rates. “The spot rate on containers has gone up massively – there are fewer containers and fewer ships, so there’s more demand than supply,” Mr Reich said. “We’ve been advised those inflated costs are going to be around for a while and ... across the market [and] that new cost is going into price inflation. “We’re looking at building products with better quality so you can charge a little bit more. We’re going through line by line what we can afford to put up and what will stay the same. “Price rises will be small at this stage [less than 5 per cent], but if it continues you might see of 8000 lines, 1000 might go up. It’s only enough to cover the cost of that shipping rate.” )The Reject Shop had also been buying more products locally, including pillows and plastic storage containers. “It’s almost as economical to buy them locally,” Mr Reich said. Jeff Adams, chief executive of Metcash, which owns the IGA, Mitre 10 and Home Timber & Hardware banners, said pricing pressure was most noticeable in hardware and tools, most of which were imported from China and Europe. “Where we have seen more of an impact of shipping costs is ... hardware and Total Tools, where those products are largely coming in on containers,” Mr Adams said. “Everybody in the market has been impacted. “Definitely there’s going to be [price] pressure in some of those categories. We’ll make sure we’re competitive in the market, and we’ll work with suppliers to make sure were competitive.” Some costs absorbed Other major retailers said they had managed to avoid paying spot shipping rates and had no plans to raise prices, while others indicated they would absorb the higher freight costs. Bunnings managing director Michael Schneider said: “We’re an everyday lowest prices business, and we manage our input costs, including freight, carefully. “While the current global demand patterns are putting pressure on some freight costs, we’re working with our long-term freight providers and our suppliers to minimise any impacts. Our focus continues to be on delivering the value and low prices our customers expect.” The higher Australian dollar has also helped offset the impact of higher freight costs, although the currency has retreated from its February high of US80¢. A Myer spokesman said: “We do not have any issues, or envisage any cost increases that will be passed on to our customers, associated with current shipping costs.” James Sheerin, senior consultant at supply chain company TMX, said the recent Suez Canal blockage had exacerbated pressure on global supply chains. “Despite the vessel now being cleared, the congestion at the Suez Canal has caused a backlog in global berthing schedules around the world,” Mr Sheerin said. “Ultimately, this will lead to delays in goods to retailers and the end consumer. “Additionally, the delay in berthing schedules will slow down the reuse of vessels for import and exports around the globe, effectively slowing down supply in the market as demand continues to rise during COVID-19. “This will exacerbate supply issues in container equipment and available vessels to meet demand, which will increase pressure on freight rates, potentially impacting retailers’ bottom line.” Mr Sheerin said more importers and retailers would consider shifting to higher-cost air freight to avoid the risks of ocean shipping. This would place more pressure on margins unless retailers raised prices.
Yep. I've been saying it for a long time now. Inflation is here, and its only going to get worse. Who was the person the other day that told me, when I said as much, that "inflation is so 1970s"? What a dunce. Prepare for HELL...
Right now, only those Asian countries, China in particular, keep the world economy floating. Biden keeps the tariffs on. So we pay for the high prices and the even higher shipping cost. With most jobs added each month and unemployment lower each month, wage and inflation will continue to rise. The only thing to keep inflation stable is that foreign investors still buy a lot of US treasury bonds. China tries to diversify into EURO, but Euro is just too weak now. Bond yields and inflation will continue to rise, just sooner or later.
RedSun, when you say China is trying to diversify into EURO, but EURO too weak, isn't that a GOOD time for China to get into EURO? If you buying not to try and turn a quick profit, but for long term diversification, you want to buy in cheap!!!
No. Weak is not a good thing. Euro has a weak economy due to its mess of the pandemic. If China or Japan buys Euro bonds right now, they do not want to get into the situation future euro is even weaker. So you do not want to buy cheap and it gets even cheaper. USD is stronger than Euro now because US vaccine situation. Asian countries have to invest their foreign currency reserve in some foreign currencies.
Talking about now and for the future. If I were Chinese, I'd want to park my FX in USD, not Euro. I think they can also buy JPY and CHF.
January is no magic month for me to start a comparison, I compared to 1 year ago, that means March 2020.