26 September 2023

Shipping cost surge: Retail price pressures and inflation risks

Start the conversation

Sue Lannin* says soaring demand for physical goods has increased congestion and delays at the world’s ports and the price of products like canned food, shoes, clothes, and computers could increase if retailers start to pass on the higher freight and input costs.


A surge in demand since the lows of the coronavirus recession has sent the cost of sea freight skyrocketing around the world — and that could soon see consumers paying higher prices.

For the first time, the cost of shipping a container on the world’s busiest shipping routes from China to Europe surpassed $US10,000 ($13,513), a rise of more than 500 per cent since June last year.

At the same time, the prices of major commodities like iron ore, steel and timber have jumped as economies recover from the coronavirus.

Soaring demand for physical goods thanks to Government stimulus, coronavirus travel restrictions, more time at home and a global shortage of cargo containers has increased congestion and delays at the world’s ports and pushed up shipping costs.

Major retailers like the Reject Shop have already flagged price rises because they have seen the cost of importing goods double or triple.

Youtube Prices of consumer goods are set to rise

That means the price of products like canned food, shoes, clothes, and computers could increase if retailers start to pass on the higher freight and input costs.

Freight costs surge for importers

A year on from the start of the pandemic, business has boomed at Plasdene Glass-Pak, a national plastic and glass container supplier based in Western Sydney.

The company has customers ranging from multinational companies to stallholders making jam for farmers’ markets.

But general manager Jayne Pearson said freight costs had gone up from 20 to 50 per cent over the past year.

“So across the last 12 months, it would be in the vicinity of hundreds of thousands of dollars additional that we’ve incurred in importation costs, and associated tariffs and surcharges,” she said.

“It’s obviously COVID impact, huge demand for more shipping. So increased demand, but at the same time reduced capacity.”

Ms Pearson said some customers were paying very high rates for some routes including a UK client who imported products from China.

“Now they’re seeing more than 840 per cent increase from China to the UK. That’s gone from around $US1,500 to more than $US15,000.”

She said the situation had forced Plasdene to increase its prices to customers.

“We shopped around as much as we possibly could, but ultimately there’s only so long we could absorb those costs, so reluctantly we did go to market with an increase this year, but it was a heavily subsidised increase,” she added.

Tin can prices increase

David Buchanan from the Australian Steel Association said the higher transport costs and higher resource costs — for example, for steel — had already seen the price of tin cans rise by 30 to 40 per cent over the past six months.

“The impacts will come down the track,” he said.

“Canned food prices will have to go up.”

Sky-high cargo costs

Over the year to May 2021, the median cost of shipping a 20-foot export container from Australia to China increased by almost 40 per cent to nearly $1,479, according to figures provided by Shipping Australia and Mizzen Group.

Although, Shipping Australia points out that at the beginning of the pandemic, Australia to China rates were $1,370 per container.

The cost of importing goods from China — the world’s factory — has surged much more.

The most expensive trade route is Shanghai to Rotterdam, according to Drewry Supply Chain Advisors, where spot rates for a 40-foot container have soared 518 per cent since June last year to $US10,462 ($13,513).

And the cost of shipping a 40-foot container from Shanghai to Sydney on the spot market doubled from a year ago to $US4,307 ($5,563) according to digital global freight booking platform Freightos.

Missed ports

Shipping companies said they have been taking action to minimise the impact of port congestion, such as skipping ports of call and cancelling planned sailings.

But that can add to delays for businesses, with Ms Pearson saying that one shipment was diverted to New Zealand and took weeks to get back to Australia.

Shipping Australia chief executive Melwyn Noronha said huge demand for freight and rising expenses had seen the cost of running a cargo ship jump to more than $92,000 a day, not including fuel.

“The demand has surged as a result of COVID and that has created a huge demand for goods, and those goods have got to be transported on a ship,” he said.

The trade congestion worsened when a huge cargo ship was stuck in the Suez Canal in Egypt in March.

The port logjams have also worsened the situation for some Australian exporters, who have been caught up in the trade tensions with China.

Exporters struggling

Paul Zalai from the Freight & Trade Alliance, which represents importers and exporters, said the delays and higher freight expenses have cost Australian businesses potentially billions of dollars.

“We’ve got one major exporter now who was very happy with finally getting rains after years of drought.

“They’ve got they’ve got a bumper crop of 20,000 tonnes of chickpeas, but they can’t get capacity on any vessels to get to overseas markets,” he said.

He said exports sometimes get bumped because shipping lines pick up empty containers to transport goods on more profitable trade routes from China to Europe or the US.

“We’ve got a situation where there’s empty containers in these ports, and it’s a struggle to get them back to the manufacturers back in China and other parts of Asia in a timely fashion,” he said.

Shipping Australia chief executive Melwyn Noronha said the shipping industry was trying its best to get around the logjams.

“Australia is predominantly an importer of goods, so you’ll have an excess of empty containers, and the shipping lines, I can tell you, in the last 12 months have been working tirelessly in getting those containers out of this country,” he said.

He said some of the delays were caused by poor productivity at Australian ports, which was worsened by industrial disputes.

“There’s a buildup, there’s a buildup of these empty containers right across the world, because of port congestion, and I think port congestion needs to be looked at very carefully.’

“It’s the landside logistics that we need to look at very carefully to get their act together.”

More industrial action begins in Melbourne tomorrow.

Call for price regulation

Mr Zalai met Trade Minister Dan Tehan last week to call for regulation of the shipping industry like in the US, where there is a Federal Maritime Commission.

The Productivity Commission is investigating vulnerable supply chains in Australia.

“So what we do need is just some level of regulation to make sure that pricing here isn’t artificially being inflated, and that again, there’s enough safeguards in place to ensure that surcharges are reasonable,” Mr Zalai said.

Mr Noronha disagrees.

“There is absolutely no economic justification to regulate the shipping industry,” he said.

“It’s a huge industry where you have multiple players competing against each other.”

The record high shipping expenses for businesses look like they are here to stay for 2021 at least, or until the global economy slows down.

Bloomberg Intelligence said it expects pressure to remain on sea freight costs, putting the shipping industry on a strong footing for a record year.

The Baltic Dry Index, which tracks the cost of moving commodities such as coal and iron ore, is at the highest in a decade as China’s economy resurges from the coronavirus pandemic.

*Sue Lannin is an ABC News Business presenter and reporter.

This article first appeared at abc.net.au.

Start the conversation

Be among the first to get all the Public Sector and Defence news and views that matter.

Subscribe now and receive the latest news, delivered free to your inbox.

By submitting your email address you are agreeing to Region Group's terms and conditions and privacy policy.