Surging UK shipping costs threaten to deliver a new price shock
The price of transporting a 40-foot container from China has jumped about 60 per cent over the past three months to US$3,305, according to data from shipping analytics company Xeneta. A separate weekly gauge published by maritime consultancy Drewry showed a similar rise.
The increase was fuelled by demand from American businesses that have been rushing to import products before US President Donald Trump's latest round of tariff hikes kick in. That's absorbed capacity and pushed up the cost of shipping on other trade routes to mainland Europe and the UK.
It's possible that the increase will prove to be just a short-lived side effect of the shifting US trade policies, and shipping costs remain well below the levels seen after the pandemic. But economists say it is likely to at least temporarily push up UK consumer prices given that British retailers are already dealing with razor-thin profit margins and will likely pass on the added expense.
'Inflated freight prices continue to add pressure to retail supply chains,' said Andrew Opie, director of food and sustainability at the British Retail Consortium. 'In a low-margin, competitive market, shipping adds to already significant costs.'
The shift is injecting another element of uncertainty into the inflation outlook just as the Bank of England is looking to continue gradually lowering interest rates and the economy shows signs of slowing. But inflation has remained well above the bank's 2 per cent target and Jonathan Steenberg, UK and Ireland economist at Coface, estimates that the shipping costs may add as much as 0.3 percentage points to the consumer-price index in the third quarter, pushing it to a 3.6 per cent rate.
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Over the longer term, it's possible that Trump's tariff increases could have a disinflationary impact if Chinese businesses cut prices to expand their exports to the UK to make up for slower US sales.
Yet for now, the cost increases are adding another squeeze to UK businesses that have already been cutting jobs and raising prices to compensate for an increase in payroll taxes and the minimum wage.
Almost 40 per cent of firms with at least 10 employees in June said they were concerned about supply chains over the next year, up five percentage points from March, according to a recent data published by the Office for National Statistics.
'We are a pretty open economy in the UK,' Steenberg said. 'We saw a more extreme version of this back in 2021-2022, when we saw this clearly feed into import prices and the prices of several goods. So we are quite sensitive to this.'
Since many companies rely on longer-term shipping contracts, the recent rates will likely continue to be felt in the months ahead. Peter Sand, chief analyst at Xeneta, said the costs of shipping have also been affected by labour shortages and maintenance works at northern European ports.
Demand for shipping into the UK has also been high, with Chinese goods exports into Britain climbing 11 per cent year on year in April.
Sand said his firm 'expects the lions' share of these inefficiencies to stick around throughout the year'.
'It all adds up,' he said. BLOOMBERG
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