Understanding the Differences Between Customs Warehouse and Tax Warehouse
26 Settembre 2023
The Red Sea Crisis: Impact on Global Trade, Shipping Routes, and Economic Landscape
15 Gennaio 2024
An essential aspect of goods’ movement is how transportation costs affect their value. If transportation costs increase, it can lead to higher final prices, impacting businesses, trade, and end consumers. Shipping costs play indeed a pivotal role in global inflation trends, with a doubling of freight rates leading to approximately a 0.7% increase in inflation. These effects are persistent, reaching their peak after a year and lasting up to 18 months.
While the impact on inflation from shipping costs is less than that of fuel or food prices, which make up a larger portion of consumer spending, shipping costs are significantly more volatile. Consequently, the contribution of global shipping price changes to inflation variations is similar in magnitude to shocks in global oil and food prices.
Last year Survey by IMF shows that higher shipping costs swiftly affect the prices of imported goods at the dock within two months and pass through to producer prices, especially for those relying on imported inputs in manufacturing. However, the impact on consumer prices at the cash register accumulates more gradually, peaking after 12 months — as seen before, a slower process compared to the rapid effects of global oil price increases felt by consumers at the pump.
The Banca d’Italia Survey
At the beginning of March, the Banca d’Italia released its annual survey for 2022 on international goods transportation.
According to the survey, the impact of transportation costs on the value of goods exported and imported by Italy has increased for the third consecutive year, reaching 3.5% and 5.0%, respectively (up from 3.4% and 4.8% in 2021). This significant increase in nominal freight rates, amid substantial rises in the prices of internationally traded goods, affected nearly all sectors, reflecting both expanding trade and fuel price hikes. Specific factors in individual sectors also contributed, such as the impact of geopolitical tensions on liquid bulk transport (oil and derivatives) and supply-side limitations in container shipping, particularly acute in the first half of 2022. The container shipping sector, in particular, experienced highly differentiated fluctuations in freight rates throughout the year, with increases in the early months often followed by declines in the second half. In real terms, costs for air transport, container and liquid bulk shipping, and road transport averaged levels corresponding to or near historical highs throughout the year.
Air Transport costs
In air transport, costs remained at the same elevated standards as the previous year, primarily due to reduced availability of scheduled flights, which are utilized for cargo transportation. The significant increase in freight rates contributed to a noticeable worsening of Italy’s balance of payments for merchant transport, reaching -10.9 billion euros, up from -6.8 billion euros in 2020, with the bulk of the impact in the maritime sector.
Road Transport costs
Regarding road freight transport, the increase in fuel costs had a substantial impact on the average transportation costs. In real terms, that is, relative to the price indices of exported goods (PPIX) or imported goods (PPIM), average road transport costs per ton remained largely unchanged.
Rail Transport costs
In this sector, average costs decreased in the bulk sector but slightly increased in the container sector. In real terms, average rail transport costs decreased, remaining slightly higher than the minimum recorded in 2012.
Maritime Transport costs
The maritime transport sector was most affected by cost increases, especially in container shipping, particularly on routes from China and other Asian countries for imports and towards North America for exports. As the Bank of Italy study notes, maritime costs are distinguished by cargo mode (container, bulk, general cargo, and Ro-Ro) to account for existing tariff peculiarities. The significant difficulty in sourcing containers, as well as the geographic imbalance in cargo demand, heavily influenced maritime shipping costs. Consequently, container shipping rates reached exceptional highs, hitting historical peaks. In the transportation of liquid bulk goods, such as oil and its derivatives, rates declined due to excessive cargo space availability. Conversely, the situation was different for solid bulk transport, such as minerals and grains, with general cargo also experiencing widespread increases due to the high demand for raw materials and semi-finished products driven by global economic recovery. Finally, the transportation of road vehicles on so-called Ro-Ro vessels remained stable.
Italian Carriers
The market share of Italian carriers declined from the previous year to 14.4% (down from 15.7% in 2020 and 24.1% in 2002), marking its lowest level in the maritime sector since 2002 (7.1%). In road transport, the share of Italian carriers increased to 22.5% after reaching a low point in 2020 (19.1%). However, in the aviation sector, the share further decreased to 14.3%, attributed by the Banca d’Italia to the “ongoing challenges of the main Italian carrier.” Given the low market share held by Italian carriers, Italy’s balance of merchant transport has a structural deficit that, between 2002 and 2020, ranged from 3 to 7 billion euros annually, with fluctuations linked to the international economic cycle and average costs. In 2021, the deficit significantly expanded to 10.9 billion euros, the largest value recorded in at least forty years, both in absolute terms and relative to GDP.
Possible solution to contain costs
The struggle of the Italian transport sector is likely to affect the value of the goods and contribute to rise the inflation level. As stated by Aurélien Rouquet, professor of logistics at Neoma Business School and director of the Revue Française de Gestion, it is important to review the organization of the supply chain, making them more malleable but also work upstream to it, by changing the marketing promises of the Companies. By extending delivery times, reducing the assortment of products offered, rethinking the offer to limit unsold items and overstocks, but also reviewing the characteristics and packaging of the products should by possible to kill two birds with one stone: meet the sustainability requirements and contain costs.
Read the other World Shipping Focus News:
Post 2M. perspectives in container shipping
India as a global hub for logistics and manufacturing
The 2035 ban to endothermic engines in Europe and how it affects Italy’s economy and export
The value of Cosmetic industry in Italy and the export forecast for 2023
The New Wave of Container Ships: Bigger and More Sustainable?
The rise and fall of the new Silk Road
Revolutionizing Storage and Logistics: VLMs and VSWs
The Evolution and Future of Space Logistics: Unlocking the Potential of Outer Space
The 13 Commercial Water Canals: Opportunities and Threats
Decarbonizing Transports: A Global Imperative
Understanding the Differences Between Customs Warehouse and Tax Warehouse
Sources:
https://www.generixgroup.com/it/blog/inflazione-trasforma-logistica-asset-strategico
https://www.bancaditalia.it/pubblicazioni/indagine-trasporti-internazionali/index.html