Worries of inflation escalated Thursday after a white-hot Consumer Price Index of 7.9% was recorded. While news outlets are focused on crude, and crude-derived products, they are missing the big inflationary pressure — logistics prices.
The rise in black gold has pushed up the price of bunker fuel, jet fuel and diesel. All of these cost increases will be folded in to the logistics bill of any item imported. This means the inflation you are seeing now on the shelves in grocery and retail stores will only go higher.
Japanese ONE and South Korean HMM, as well as other carriers, are adding fuel fees in an effort to cover skyrocketing fuel costs. As we have seen through the last two years, any additional surcharges have been passed on from the importer to the consumer.
Container prices, another way for ocean carriers to cover costs, are going back up. The maritime superhighway is becoming more costly.
“On the Far East to the U.S. East Coast, deployed capacity is expected to fall in the coming three weeks,” explained Peter Sand, chief analyst at Xeneta. “According to our data, spot rates out of China into the U.S. East Coast and U.S. West Coast are now the highest ever — plus any applicable priority shipment fees.”
Products traveling by air will also endure price turbulence. War-risk surcharges and fuel surcharges were first reflected in last week’s soaring airfreight rates, and the climb is expected to continue.
The Freightos Air Index (FAX) Shanghai-Northern Europe benchmark has increased 34% in March to $8.37 per kilogram. The pre-pandemic prices of $2.35/kg seem like a lifetime ago. These price hikes will be piled onto the logistics bill that importers will pass onto consumers.
“Air cargo rates from Shanghai to several major U.S. airports have now increased by 50% or more compared to just before the sanctions,” explained Judah Levine, Freightos Group head of research. “Fuel costs are spiking and some carriers are already taking longer, more costly routes to avoid Russian airspace, including a polar route often taken from China to the West Coast.”
Logistics providers on the Freightos.com marketplace are also reporting that U.S. sanctions against Russian carriers are restricting capacity.
Robert Khachatryan, CEO of Freight Right Logistics, explained that “a number of Russian-owned carriers like AirBridgeCargo, S7 and Aeroflot all fly the trans-Pacific and are currently grounded due to direct sanctions.”
Levine added customers are seeing some carriers moving flights to the Asia-Europe lanes at the expense of Asia-U.S. capacity. Levine says this will put pressure on trans-Pacific rates as a result of available capacity from Asia to Europe dropping due to sanctions.
Unfortunately, after the product arrives either by air or by the sea, the trucking pipe is also being slammed. Trucking fuel surcharges are jumping. Alan Baer, CEO of OL-USA, warns this is far from over.
“We were between 20% to 27%, and we now see 45%,” Baer explained. “We have the potential for the fuel surcharge to reach 60%-plus if diesel hits $5.50 a gallon.”