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High Container Ship Costs Adding to Inflation

The demand for container ships is so high that shipping firms are using old boats to move cargo, according to Reuters (subscription).

Old ships, new life: Freight rates for older container ships have reached record highs as global supply chain congestion coupled with a shortage of new cargo vessels has increased demand for ships significantly.

Long-term leases: To cash in on sky-high demand, shipping firms are increasingly securing long-term leases on older container ships. With some leases lasting several years, consumers could continue paying for the cost surge until hundreds of new ships enter service. 

Capacity growth: Global container ship capacity grew by 4.7% last year, mainly because older ships that would normally be retired kept on sailing. So far, keeping older ships moving freight has not been enough to cool the increasing shipping costs. 

Container shipping prices soar: “In May, the cost of locking in container shipments soared a staggering 30.1%, a record monthly increase in long-term ocean freight rates, according to Xeneta’s ocean freight index.”

Shipping costs and inflation: Record shipping rates have contributed to rising prices for a wide range of consumer goods. The International Monetary Fund estimated that the increase in container shipping costs was responsible for 1.5 percentage points of global price rises this year, or about 25% of the U.S. inflation rate.

What the experts are saying: “The current still-high freight rates will continue to put pressure on consumer prices well into 2023,” said Jan Hoffmann, head of trade logistics at the United Nations Conference on Trade and Development. “I fear that freight rates will remain higher than pre-COVID for many more years.”

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