As parts of Europe contend with new strains of the virus, and extended lockdowns, there’s another problem which is becoming too big to ignore. It's the rapid rise in shipping costs which is threatening the continent's recovery.
Let’s start with China. It has been one of the only major economies to see economic growth last year, as GDP data came in at 2.3% for the year.
It may be its weakest growth in 40 years, but given how other major economies have fared this year, it’s a pretty impressive turnaround.
In fact, the economy even expanded at its fastest pace in Q4 since 2018, faster than just before the pandemic.
Consumer spending in China remains pretty low, resulting in low inflation. But, the economic revival was made possible by higher industrial production and increased exports, particularly for medical equipment and stay at home goods, such as computers.
To add to China's incredible growth, over the past three months we have seen China’s biggest ever trade surplus, at double-digit growth month over month with little sign that demand for Chinese goods is about to slow.
As the world recovers from the pandemic, demand is actually expected to increase even more. This is because successful vaccine rollouts would allow industrial production in America and Europe to get back up and running again.
There’s another more pressing concern that threatens the future, of not only China’s economic growth, but major importers of Chinese goods especially Europe.
This may seem like an unlikely suspect to strangle the global economy, but one of the biggest bottlenecks right now are shipping containers.
If we look back to November last year, the cost of moving a 40ft container from Asia to northern Europe was around $2000. Today, we're looking at around $9000 for the same routes, that’s more than 4x the cost.
This isn’t just an issue for Europe either. The world container index has also seen global prices up 194% from a year ago.
This rapid price increase comes as a result from the disruption to international trade throughout this year. It has left China in short supply of containers to move goods in, with huge amounts being left in the US and Europe.
Short supply and increasing demand inevitably leads to higher prices.
The high cost of shipping is becoming more of a problem for Europe than it is for America. This is because rates to the US have stalled since October, when the Chinese government told shipping companies to cap shipping rates to the US.
Shipping containers aren’t the sole blame though. The sudden increase in demand is also creating congestion at ports. Shipping companies need to charge more to account for waiting times, which is also inflating the problem.
In the UK, the UK’s Association of Manufacturers of Domestic Appliances had seen members report increases of up to 300% in shipping costs, since the beginning of last year. One freight company said some customers were paying up to $12,000 per container.
There are even reports that once the container has hit the mainland, road haulage costs have also more than doubled in some cases.
The shortage of containers doesn’t just result in price increases either. IHS Markit data showed the worst delivery times since last April, meaning companies are having to wait longer to receive orders.
For manufacturers it means supply shortages and for consumers it means they are likely to bear the costs, which could lead to a temporary rise in inflation.
A number of experts suggest this problem won’t be resolved soon either, at least in the first half of this year. Although China has been ordering more containers, it comes a bit too late and we may see even higher shipping costs to Europe, perhaps even America over the next few months.