In the second quarter of this year, the global shipping industry began to feel the PTSD of shipping interruptions.

In recent weeks, European and American shippers have gradually felt that the booking of cargo ships from Asia has become increasingly tight, and spot container prices have soared to their highest level since 2022. The historical interruption of 25 trillion US dollars in global commodity trade reached its peak during the epidemic two years ago, leaving deep economic scars such as supply shortages and inflation.

Shipping interruptions pose a risk of pushing up inflation.

So far, commodity trade has withstood the first post-epidemic shock, and global consumer prices have not risen significantly. However, if shipping chaos is proven to be persistent or begins to put land logistics into trouble, this cannot guarantee that negative effects will not manifest.

Nomura Securities economists, led by George Moran, wrote in a research report on Wednesday, "We believe that the market underestimates the risk of rising shipping prices. Our model shows that inflation may face significant upward pressure."

Any rebound in consumer price inflation will pose a major challenge for central banks that have already begun or are preparing to lower interest rates. Increased efforts by the shipping industry to address imbalances may be helpful to policymakers.

In the past six months, the attack on ships in the Red Sea has highlighted the fragility of global trade, and almost no expert predicted that such attacks would last so long. Although the supply interruption has not yet reached the level of the epidemic period, importers warn that the cost will eventually need to be passed on to consumers, and recent turbulence is another force driving companies to relocate production closer to sales points.

Shipping companies face the cost challenge brought by shortages and may pass on cost pressures.

COE distribution, a Pennsylvania-based office furniture wholesaler, is one of the affected companies. The company has been using the Red Sea route to import about 50% of its products from Asian manufacturers. CEO J.D. Ewing said:" At present, the impact is not great or obvious for most American consumers, but we are starting to see significant cost impacts."

For other US companies, the shipping market cycle is affecting them more severely than ever before.

Greg Davidson, co-founder and CEO of Lalo, a New York-based baby product company, said he paid about $210,000 for a 40-foot container in 2022. Lalo ships hundreds of containers from Asia each year. He said the industry is now speculating that prices will return to $200,000. This will be much higher than the $9,000 he paid recently. Davidson said:" If container prices rise again to this level, it will obviously cause some degree of inflation for some commodities."

Signs of this price pressure have emerged. US PPI rose slightly higher than expected in June. At the time of the latest crisis, wholesalers and retailers in the US and Europe were eager to increase inventory before the back-to-school and year-end holiday shopping seasons. Another driving factor is the US threat to impose higher tariffs on Chinese imports.

Stephen Lamar, president of the American Clothing and Footwear Association, representing more than 1,000 well-known brands, said:" The only good thing is that we have a better understanding of persistent problems; but this does not mean that these problems are easier to manage or deal with."

European companies, which are closer to the Red Sea, are feeling the significant impact. UK furniture retailer DFS Furniture Plc issued a profit warning last month, stating that the interruption of Red Sea shipping has caused shipping costs to rise and delivery delays.

Alex Baldock, CEO of UK electronics retailer Currys Plc, said in an analyst conference call last month that supply chain and service operating costs have "reached the gross margin line", forcing the company to implement cost control measures.

Fredrik Dalborg, CEO of AddLife AB, a life science company based in Stockholm, said in a conference call on Monday that the company is working with suppliers to deal with "a large amount" of backlog orders. He added that buffer inventories are being established in some cases.

The tight situation in the shipping industry has eased, but there is a risk of deterioration.

However, there are signs that the recent shipping crisis may be approaching its peak.

Singapore is a major transshipment center for Asian goods, and the congested condition of its ports seems to be easing, while the spot container freight rates tracked by Oslo-based freight analytics platform Xeneta for shipments from Asia to the US seem to be stabilizing.

Emily Stausbøll, senior shipping analyst at Xeneta, said, "Shippers may once again start to stir up competition between shipping companies. As the balance of negotiating power begins to tilt towards shippers, we should see spot rates begin to fall."

Wells Fargo & Co economists Tim Quinlan, Shannon Seery Grein, and Nicole Cervi also wrote in a recent research report, "Higher transportation costs today are unlikely to be fully passed on to the end buyer."

Fortunately, the interruptions during the epidemic have also created buffers for companies like Globe Electric: procurement teams are now more flexible and rely on technology and data tools to guide their decisions.

However, if the Panama Canal drought, labor riots at German ports, or strikes by dock workers on the US East Coast and Gulf Coast occur again, this expectation may change.

Globe Electric delivers up to 2,000 containers per year to customers across North America, and Stahl is cautiously optimistic about short-term prospects. The company's Vice President of Operations, Jason Starr, said freight rates should begin to stabilize and may decline in September and October. But he said, "If this situation continues for another 6 to 12 months, then we will have to have more talks about raising prices."

Editor/ping