Tensions in the Middle East have disrupted shipping lanes through the Gulf of Aden, forcing many carriers to take the longer route around the tip of southern Africa. The result has been an increase in global shipping costs. The Freightos Global Baltic Index, which is a weighted average of freight costs across twelve regional routes, more than trebled from November to January. However, the index remained well below levels seen during the pandemic. Moreover, prices have eased in recent weeks, perhaps reflecting seasonal factors after strong western demand ahead of the holiday season. While prices have dipped, the disruption is not over. The new routes not only put upward pressure on prices but are also leading to delayed delivery times. However, with global manufacturing demand relatively soft, it seems producers have been able to cope. There is no evidence in manufacturing survey data that this has led to backlogs in orders or large disruption to production. The upshot is that this disruption has had a major impact on the international freight market, but not on the inflationary outlook as yet. To hear more about this topic, sign up to attend LSEG’s Q1 Macro webinar The Canals: The Impact of Freight Costs on Prices on Wednesday 27 March from 1300 GMT, where Kevin Loane, Fathom’s Head of Global Economics, will be one of the keynote speakers.
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